Revised Statutory Minimum Reserves Circular

Inflation has remained subdued at single digit level, well below the medium term target of 5 percent supported by decline in global oil prices, improvement in food supply in the EAC region and prudent monetary policy stance pursued since the end of 2011. Recently, there has been pressure on the TZS/USDexchange rate driven mostly by strengthening of USDfollowing good performance of the USeconomy coupled with speculative activities in the foreign exchange market. Thisis likely to put upward pressure on inflation that may become more difficult to fight going forward. The statutory minimum reserve requirement remains an important instrument of monetary control and financial prudence in Tanzania. However, its utilization is determined by long term objectives of monetary policy given the prevailing economic conditions.

1. GENERAL POLICY AND IMPLEMENTATION GUIDANCE
   In accordance with Section 44 of the Bank of Tanzania Act, 2006, and Sections 4 and 71 of the Banking and Financial Institutions Act, 2006, all banks in Tanzania - Mainland and Zanzibar, are required to maintain statutory minimum reserves (SMR) on their total deposit liabilities and funds borrowed from the general public. STATUTORYMINIMUM RESERVESAGAINST DEPOSITSAND BORROWINGS All Banks UNITED REPUBLIC OF TANZANIA CIRCULAR NO.1 (Issued on 30th April 2015) Ref. No.A.56/130/01 April ao-. 2015 BANK OF TANZANIA 2 Mirambo Street P.O. Box2939 11884DARESSALAAM THE GOVERNOR Cable: 41024 "BENKUU" Tel.Gen: 255 22 2233000 Dir: 255 22 2233020/1 Facsimile: 2552234085 E-mail: governoroffice@bot.go.tz

2.2 In recognition of the logistical challenges of transporting cash that
face banks with widely spread branch network, all banks with branches in at least half of the districts in the United Republic of Tanzania shall be required to keep only ninety percent (90%) of the required minimum reservesin the SMRaccount at the Bank of Tanzania.
2.1 Each bank shall maintain the required amount (calculated as the
sum of (1.1) and (1.2) above) in the SMRaccount at the Bank of Tanzania on a daily basis for the subsequent two weeks. Each bank shall submit a weekly report to the Bank of Tanzania not later than the second Monday after the reference week. Such weekly reports shall be submitted in the format prescribed in the preceding Circular Number 1,issuedon 18thOctober 2011.
2. CALCULATION OF THE REQUIRED STATUTORY MINIMUM RESERVES,
SUBMISSION OF REPORTSAND PENALTY
1.4 Only balances in excess of SMR shall be available for clearing
purposes. No bank shall be allowed to withdraw funds below its SMRrequirement at the Bank of Tanzania to manage their liquidity shortfalls.Instead, banks are encouraged to make effective use of the inter-bank cash market and other available liquidity bridging windows at the Bank of Tanzania, namely: the intra-day loan facility, the discount window and the Lombard facility.
1.3 Under the above arrangements, cash in vault shall not form part of
the available reservesin the computation of the required SMR.
1.2 Forty percent (40%)of the preceding two weeks average of the
local and foreign currency central government deposits, also held in local currency.
1.1 Ten percent (10%) of the preceding two weeks average of the
local and foreign currency deposit liabilities (of non-government and local government entities) and borrowings from the general public, all held in local currency, and By this Circular, therefore each bank shall be required to maintain SMR account with the Bank of Tanzania in the amount and manner in which the required cash reserves shall be calculated by banks as prescribed in this Circular. From the date this Circular becomes effective, SMRrequirement for each bank shall be equivalent to:
Having considered these developments and the importance of low and stable inflation for sustainable growth, the Bank of Tanzania has decided to revise the SMR rate charged on private deposit liabilities with banks and general public from the current level of 8 percent to 10percent.

Prof. Benno Ndulu
GOVERNOR
Sincerely,
3.2. The Circular shall take effect on 29th May 2015.
3.1. ThisCircular repeals Circular No.1 as amended on 26th November
2014,which became effective on 29th December 2014.
3.0 REPEALING CLAUSE AND EFFECTIVE DATE
2.4 The penalty charges imposed in section 2.3, sub-section (a), (b),
and (c) above shall be recovered by the Bank of Tanzania from any balances of or monies owed to the bank concerned or as a civil debt. (c) Misrepresentation or submission of incorrect "Report for Minimum ReserveRequirements" by any bank shall attract a penalty amounting to shillingsone million (TZS1,000,000)per day of existence of such misrepresentation or submission of incorrect information. (b) For failure to maintain the statutory minimum reserves required under this Circular - a penalty equivalent to the weighted average yield of all Treasury bill maturities obtained in the most recent auction shall be applied on the amount of deficiency for every day in which non￾compliance occurs. (a) For failure to submit the compliance "Report for Minimum Reserve Requirements" - a penalty of shillings one million (TZS1,000,000) per day shall be imposed for every day in which the failure occurs.
2.3 Any bank which violates the requirements of this Circular shall be
liable to penalties as follows: