Evolving monetary policy frameworks in low-income countries: The Tanzanian experience

Abstract

This chapter describes the evolution of monetary policy in Tanzania since the mid-1990s, when the Bank of Tanzania pursued a conventional reserve money programme, with broad money as the intermediate anchor for inflation and reserve money growth as the principal policy instrument. While this approach, and a managed floating exchange rate regime, supported a sustained period of high economic growth, the increased globalization of Tanzania’s economy and the associated move towards greater capital account openness has prompted the Bank of Tanzania to embark on a transition towards a price-based monetary policy framework, in which the money aggregates are replaced by an explicit inflation target and a greater reliance is placed on the short-term interest rate as the main policy instrument.