Effects of Macroeconomic Factors on Bank Liquidity:

Abstract

This study investigates the impact of macroeconomic factors specifically GDP growth, inflation, and foreign exchange rate fluctuations on the liquidity of NMB Bank in the Dar es Salaam region.The research adopts a quantitative design, utilizing secondary data from the Bank of Tanzania and NMB Bank from 2010 to 2022. The findings from the Multiple regression analyses indicate that GDP growth, inflation rates, and exchange rate fluctuations significantly impact NMB Bank's liquidity. For GDP growth, an Adjusted R-Square of 0.8069 and F-value of 60.91 indicate that 80.69% of liquidity variance is explained by economic factors, suggesting growth enhances deposits and liquidity. Inflation analysis shows a 72.2% variance explained (Adjusted R-Square 0.722), with a significant impact from purchasing power and interest rates, as shown by coefficients of 1.227 and 20.565. Exchange rate fluctuations similarly affect liquidity, with a 70.64% variance (Adjusted R-Square 0.7064), impacting deposits and financial stability. For GDP growth, the study concludes that it enhances NMB Bank's liquidity by increasing deposits and financial stability. It is recommended that NMB Bank use economic forecasting to align liquidity management with GDP trends. For inflation, the study finds it significantly affects liquidity through changes in purchasing power and interest rates. NMB should adopt flexible pricing and interest strategies to mitigate inflation impacts. For exchange rate fluctuations, the study concludes they influence liquidity and recommends that NMB implement effective hedging and currency risk management practices to maintain financial stability during periods of exchange rate volatility.