BoT to stabilise shilling despite its unpredictability

Dr Masawe
Bank of Tanzania (BoT) said yesterday the shilling movement remains unpredictable, but its agenda is to stabilize the exchange rates to make it easier for the economy to function at near of full penitential.

Currency instability affects businesses by making it difficult for firms and traders to plan accordingly due to failure to peg the prices or value of goods and services in the short and long runs.

BoT’s Director of Economic Research and Policy Dr Joe Masawe said the shilling instability is currently a result of a number of variables including speculation and liquidity movement in the economy.

“The shilling is unpredictable due to a myriad of factors…the central bank wants to stabilise the exchange rates by avoiding sudden fluctuations in the  market,” Dr Masawe said told the Daily News in an tele-interview.

He said it is currently difficult to predict the movement of exchange rates in the market as sometime the financial market reacts on speculation or changing demand, unlike previous trend where the demand mainly came from the dollar side.

The Director ruled out that the central bank was practicing band exchange rate regime where a certain margin level is set and the BoT make sure it does not go beyond the band.

The BoT intervened the market to manage liquidity level in the economy or balance the exchange rate selling short term government instrument—Treasury Bills.

“Our policy is not to target the exchange rate but to stabilise the shilling by maintaining money circulation,” Dr Masawe said adding, “We have to balance between intervention and T-bills interest rates to avoid distorting the market.”

Since the beginning of this year, the shilling has traded flatly against the dollar at between 1,580/- and 1,595/-, a level that signifies a band regime and new equilibrium, according to BoT data.

Standard Chartered Bank said the shilling continued trading flat against the US dollar last Friday on the back of matched flows in the interbank and corporate markets. 

“Tuesday we expect a similar trend with low to moderate level of volatility,” the bank said in its daily market commentary yesterday. The shilling stabilization assisted interbank market to remain stable on close of business last Friday with overnight rates trading within the 2 to 10 percent range.

“The secondary market demand for assets remains high with five year paper seeing strong purchase at 13 per cent. Supply of the papers is still low as most players are anticipating a decline in the yield curve,” Standard Chartered said.

The local currency though appreciated handsomely in the last four months from last October, hitting 1,870/- the highest level since inception of the shilling in June 1966.

The shilling stability will also easy inflation rate hovering at 19.8 per cent as of December last year. The country being a net importer, the depreciating shilling pushes consumer price index upwards.

Economists, however, have it that the inflation would not be termed as long the central bank is using monetary tools to curb fiscal indiscipline—pushed by structural constraints and public fund mismanagement.
Source: tzexchange.blogspot.com
Share on Google Plus

About Abduel Elinaza

This is a short description in the author block about the author. You edit it by entering text in the "Biographical Info" field in the user admin panel.