BoT Governor defends shilling

Prof. Ndulu
The Bank of Tanzania has said strengthening the shilling could hurt exports and tourists inflows although it could lead to a lower imports bill.

The BoT Governor, Prof Benno Ndulu told the ‘Daily News’ that it was important to balance the two as in most cases people forget about exports, which are the main source of the foreign currency.

Currently, the shilling exchanges for between 1,560/- and 1,600/- to the US dollar, rates critics see as too high but are supported by the BoT for economic growth. 

Critics want the shilling to exchange for at least around 1,000/- and 1,200/- to a dollar in order to check inflation.

“We have to encourage exports as a weaker shilling makes our exports cheap,” Prof Ndulu said on Wednesday night at a Capital Markets and Securities Authority farewell part for Chairman and CEO.

The Governor, a former professor of economics at the University of Dar es Salaam said weakening the shilling increases farmers’ earnings thus encouraging them to increase productivity and at the same time increases the country’s foreign earnings.

“The major causes of cashew nut saga are the shilling appreciation, as it lowered the price of nuts per kilo,” The BoT governor said, “when indicative price was set, the shilling was very low but appreciated when the season starts.”

The Governor said despite the country being a net-importer, it is very important to look critically at the level of exchange rate as we are exporting similar products like neighbour countries.

But economists differ, saying stabilisation of the exchange rate is important for the economy as it makes it easier for businesses to function at full potential. Therefore, its predictability is very important, they argue.

Shilling stabilisation also helped money mongers to shift attention to treasury bonds and bills, and also to overnight borrowing and repurchase agreements (Repos). 

Mzumbe University Dar es Salaam Business School, lecturer Dr Honest Ngowi said although the shilling had stabilised, the rate was still high and of little effect on inflation. He prefers the shilling exchanging at least at 1,000/- to a US dollar.

According to Standard Chartered Bank daily market report the shilling remained to be well supported following monthly end tax flows have a “made scarce liquidity even scarcer”.

“Most companies have had to withhold demand as tax payments are given priority and in turn this has continued to buoy the dollar/shilling,” the bank said in a recent report.
Source: The Daily News,http://www.dailynews.co.tz, reported by Abduel Elinaza
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