The Money Market and Treasury Bills in Tanzania


This is all you need to know about money market and Treasury Bills on Tanzania

Money market comprises of dealing in the Treasury bills, Repurchase Agreements (REPOS), Interbank Cash Market (IBCM) and Interbank Foreign Exchange Market (IFEM).

The Treasury bills market is dominated by commercial banks and participation is limited to residents. The tenure of Treasury bills are 35, 91, 182, and 364 days, which are issued in the primary market once fortnightly and settlement is done on the next day, and secondary market trading is done over the counter.

Repurchase Agreements (REPOS) involve the sale of securities with an agreement to repurchase the securities at a future date, and at an agreed price. They were introduced to manage intra-auction liquidity variations. At the moment repo transactions are conducted between the Bank and commercial banks. Tenure for Repos ranges between 2 days maturity to 14 days maturity.

Interbank cash market provides opportunity for lending and borrowing amongst commercial banks. It is a key segment in the money market where banks trade their positions to manage their liquidity imbalances.

Interbank foreign exchange market

Foreign exchange transactions in Tanzania are done between the Bank and commercial banks and amongst commercial banks (interbank foreign exchange market), banks and their customers, including bureaus de change. However, large volumes of foreign exchange transactions take place in the IFEM. The exchange rate used is market determined and the mean official exchange rate serves as a reference rate.
The IFEM plays an important role in the determination of the official exchange rate and monetary policy implementation. The number of participating commercial banks in this market currently stands at 32, out of which, 18 transact through Reuters Dealing System. The price mechanism is a two way-quote system, where each bank posts its bid/ask prices, good for US dollar 100,000.00.
The main objectives of the IFEM are:
a) To allow banks and other authorised dealers to play an active role in developing markets and instruments to serve their customers;
b) To increase the efficiency in the allocation of foreign exchange reserves, thereby facilitating market-determined exchange rates;
c) to create a favourable environment for foreign investment, which would, ultimately, pave the way to full liberalisation of the capital account; and
d) To improve the conduct of monetary policy