Bank of Tanzania (BoT) has signed a Memorandum of Understanding (MoU) with Frontclear, a financial market development firm in partnership with UN Economic Commission for Africa (ECA), to develop money markets and stimulate growth and development.
The BoT Deputy Governor, Economic and Financial Policies, Dr Yamungu Kayandabila signed the MoU with Frontclear Chief Executive Officer, Phillip Buyskes in Dar es Salaam yesterday.
“Development of money market including a more participatory interbank market is clearly in BoT agenda,” said Dr Kayandabila, noting that the agreement reflected a shared commitment to developing money market in Tanzania, including a more participatory interbank market and secondary bond market.
He said the agreement would help to develop money markets and including deepening interbank market and secondary bond market.
Under the MoU, challenges in the money and interbank markets would be identified and measures to deal with them would be recommended, he said.
He said more stable and inclusive money markets were a pre-requisite for increasing depth in local currency bond markets.
“The nucleus of the money market is interbank lending, where banks borrow and lend to each other using financial instruments such as repurchase agreements (repos), and hedge balance sheet risks through derivatives.
“Central Bank and banks rely on interbank markets to deal with immediate liquidity challenges and to transmit changes in monetary policy,” he said.
The Frontline CEO, Mr Buyskes said his company was uniquely focused on the development of inclusive and stable money markets in emerging markets and developing countries.
He said the impacts of Covid-19, Russia and Ukraine war combined with rising US dollar interest rates and increased global inflation pressures had strained economies of many of the emerging markets and developing countries and affecting their money markets.
He said development and further deepening of money market would allow liquidity to flow in the system.
He said they had chosen Tanzania because of its strong macroeconomic records with robust growth and controlled inflation against the backdrop of global economic uncertainties.
The central bank commitment to develop the money market and eagerness to work with Frontclear and ECA had contributed to reaching MoU signing, he said.
“We are pleased to work together with BoT to deepen the money market. We will work together to do diagnosis of what works and what does not work. What needs to be fixed in legal and regulatory framework,” he later told the `Daily News.’
We expect over time money markets would be deepened and more banks would participate in the interbank money market,” he said.
My Buyskes they were also looking to develop a tradeclear, a special window that will help small banks to participate more actively in the interbank market where they will be the guarantor.
“Our long-term focus (which is) subject to Central Bank approval, is to develop a tradeclear window where they would step in as guarantor in interbank market to help small banks participate more actively in the market,” he said.
The Managing Director and Chief Executive Officer of Absa Bank Tanzania Limited Abdi Mohamed said the MoU was important as it would help to further deepen the money market.
Mr Mohamed, who is also the Chairman of the Financial Markets Committee of the Tanzania Bankers Association (TBA), said the banking sector was committed to create and support financial stability.
He said challenges of money market in Tanzania were global in nature and drawing the support to make money market more efficient was a move towards the right direction.
The Acting Chief Executive Officer of the Dar es Salaam Stock Exchange, Mary Mniwasa commended BoT and ECA for signing the MoU, noting deal was important to help small banks to take more active role in money market to improve liquidity in the financial system.
“Commercial banks were the major market liquid providers but large commercial banks were the only participants in the interbank market. Any intervention by stakeholders in helping to develop the markets is highly appreciated,” she said.
