Inflation and Commercial Banks Operation in Tanzania

This paper addresses connection of inflation and commercial banks operation by using quarterly time series data from 2008 to 2017. The study precisely shows relationship of inflation and customer savings in the commercial banks; and bank lending to customers using Vector Error Correction Model. The study reveals that there is existence of long run relationship among customer saving and inflation; and bank lending and inflation. The study reveals positive impact of customer saving and bank lending on inflation. The government of Tanzania should increase expenditure to necessary activities so as to expand banks operations because it is a crucial sector in the financial sector. However, the government should have continuous monitoring and control of the inflation to prevent financial sector shakiness. Additionally, Commercial banks should put much control on lending by increasing interest rates and choosing borrower with good character.