Monetary Policy Process
Prepared by Koffie Ben Nassar.
Bank of Tanzania, “Bank of Tanzania’s Inflation Control Strategy,”Monetary Policy Statement (Dodoma: Bank of Tanzania, June 2002), p. ix.
Bank of Tanzania, Monetary Policy Statement, June 2002, p. 36.
See Steven Kamin, Philip Turner, and Jozef Van’t dack, “The Transmission Mechanism of Monetary Policy in Emerging Market Economies: An Overview” in The Transmission of Monetary Policy in Emerging Market Economies, BIS Policy Papers, No. 3 (Basel: Bank for International Settlements, 1998), pp. 5-64.
The existence of a stable long-run relationship between money and inflation is supported by the results of a study conducted by the BoT research staff, which examined the demand for money in Tanzania for the period 1987-97. See J.J. Nyella, “Demand for Money” (unpublished, Dar es Salaam: Bank of Tanzania, 1998). However, there is evidence that in recent years the money demand function has shifted and become unstable. As a result, the BoT uses its judgment in order to arrive at a reasonable projection of velocity.
The money multiplier has not been stable in the past. A study by BoT staff suggests that the estimation of the multiplier could be improved by exploring more fully the time-series properties of the multiplier. See M.M. Mbawala, “The Money Multiplier” (unpublished; Dar es Salaam: Bank of Tanzania 1998).
See Section I of this issues paper.
According to the Taylor rule, [Rt*=constant + αEt(πt+1) + γyt], and the output gap and a fall in expected inflation Et(πt+1) call for a loosening of monetary policy so as to lower desired interest rates (Rt*)
Developments in the interbank foreign exchange market (1FEM) reflect the seasonality of economic activity in Tanzania, The first half of the calendar year is a lean period, when the demand for foreign currency exceeds supply and the central bank intervenes to provide foreign exchange. During the second half of the year, exports pick up, and the BoT intervenes to purchase foreign exchange.
Section III of this issues paper evaluates the competitiveness of the Tanzanian economy.
Section 112 stipulates that “[a]n occupier of land under a right of occupancy and a lessee may, by an instrument in the prescribed form, mortgage his interest in the land or a part thereof to secure the payment of an existing or a future or a contingent debt or other money or money’s worth or the fulfillment of a condition.”