INTERBANK lending rates opened 2026 on a relatively stable footing, signalling that liquidity conditions in the banking system remain broadly supportive despite a mild uptick at the start of the year.

Latest figures from the Bank of Tanzania (BoT) show that the weighted average overnight interbank rate edged up to 6.13 percent in January 2026, from 6.00 percent in December 2025, within the regulatory central bank rate (CBR) bands. 

The overall interbank cash market rate also increased slightly to 6.40 percent in January, compared to 6.29 percent a month earlier.

While the rise suggests some seasonal liquidity pressures—often associated with government spending cycles and renewed private sector financing demand at the beginning of the year—rates remain significantly lower than the peaks recorded in early 2025, the update indicated. 

The current levels point to a banking system that is better cushioned against short-term funding stress, with the easing trend that defined the second half of 2025 marking a sharp turnaround from the tighter conditions seen in the first six months of the year. 

In January 2025, the overnight rate stood at 7.69 percent and inched up to 7.95 percent in May, while the overall interbank rate similarly rose from 7.80 percent in January to 8.12 percent in March, before easing slightly to 7.98 percent in May.

Those elevated levels reflected tighter liquidity, driven by seasonal tax payments, fiscal operations and sustained credit demand. Funding costs in the interbank market remained relatively high, compelling banks to borrow at steeper rates to meet short-term obligations, it stated.

However, from July onward, the market shifted decisively, as the overnight rate fell to 6.62 percent in July, slipping to 6.15 percent in August before stabilizing at around 6.08 percent by December and 6.00 percent in November and December respectively, marking a clear departure from the near-eight percent levels recorded earlier in the year.

The overall interbank rate followed a similar pattern, dropping to 7.35 percent in July and 6.48 percent in August, before settling at 6.29 percent in December, where the broad-based decline pointed to improved liquidity conditions, possibly supported by stronger foreign exchange inflows and calibrated liquidity injections.

Monetary policy adjustments also played a role as the repo rate remained at 5.30 percent during the first half of 2025, before rising to 5.77 percent in July. 

It then reverted to 5.30 percent in August and was lowered to 4.79 percent in September and October, coinciding with the steep drop in interbank rates. Toward the end of the year, the rate was raised to 5.75 percent in December and maintained at that level in January 2026.

These shifts indicate an active liquidity management approach, balancing inflation control with the need to sustain credit growth. The easing in the third quarter appears to have reinforced the downward momentum in short-term borrowing costs, while the subsequent upward adjustment helped anchor expectations.

For commercial banks, the convergence of overnight and overall interbank rates around the six percent mark suggests improved predictability in funding costs. Lower volatility in the final quarter of 2025 enhanced confidence within the interbank market and reduced uncertainty over short-term liquidity access.

For borrowers, sustained moderation in interbank rates may gradually support more competitive lending conditions, though the transmission to retail rates depends on banks’ cost structures and risk assessments. Depositors, meanwhile, may see limited upward adjustments in deposit yields if money market rates remain subdued.

Overall, the start of 2026 reflects a system that has transitioned from early-year tightness in 2025 to relative stability. The slight January rebound appears manageable with liquidity conditions still considerably looser than a year ago, the update intoned.