Financial Sector Development and Inflation Dynamics in Tanzania: An Empirical Assessment of Macroeconomic Stability

This study empirically analyzes the impact of financial sector development on the inflation rate in Tanzania, focusing on credit to the private sector as a proxy for financial sector growth. Quarterly time series data are collected from 2003 to 2023. Autoregressive Distributed Lag (ARDL) Model estimation with a bound cointegration test establishes the short and long-term relationship. The results show that financial sector development increases the inflation rate in the long run. The findings underscore the importance of balancing financial sector expansion with measures to control inflation and ensure that credit growth supports sustainable economic development.