Shilling fluctuation in mixed reaction

The foreign exchange market was blanketed with mixed reaction over the shilling fluctuating.

The analysts at one hand predicted a relatively flat market with a bias on a stronger shilling pushed up by the end of the month local currency demand for tax and salaries obligations.

Others have it that the shilling will continue depreciating as oil sector demand placed added pressure on the local currency to warrant further weakness.

The Standard Chartered Bank said the currency remained relatively flat towards the end of last week with equal demand for both currencies thus trending into equilibrium.

"We anticipate the trend to continue with a slight bias on a stronger shilling on the back of increased month end local currency demand," the banks said in its Daily Market Report yesterday. It added: "Low to medium market volatility expected today (yesterday)."

According to National Microfinance Bank (NMB), last Friday's session saw the shilling retrace previous day's gains, to close 2/- weaker at 1,596/1,616, as US dollars selling and inflows dwindled slightly.

"Further weakness is forecast in the near-term before any major reversal would be likely," NMB says in its e-Markets. The weakening local currency was pegged, in addition, to the oil sector greenback demand that placed added pressure on the shilling.

The shilling appreciated toward the end of the month as corporate are settling their end months obligation of mainly of paying taxes thus pushing up demand for the local currency. This August the Bank of Tanzania sold 59 per cent of the total market turnover to complement other monetary policy instruments.

However, a research by Open University of Tanzania Master of Economics student "Impact of Foreign Exchange Intervention on Shilling in Tanzania" shows BoT intervention in the forex market does not help to cool off volatility but rather influences it.

Using the weekly data from 2006 to 2012 the researcher finds out that 0.22 per cent of the disequilibrium is corrected in week time because data used to calculate equation were in weekly series.

"This indicating that the foreign exchange market to return to equilibrium, given the percentage of correcting the disequilibrium shown, it will take longer time if intervention method is deployed," the researcher says.

The shilling gain, according to financial analysts, will be defeated in the short-term as the country's imports mismatch with exports and the little generated income.

The value of exports of goods and services was 8,269.6 million US dollars during the year ending July while total imports stands at 10,485.7 million US dollars.
Source: Daily News, reported by Abduel Elinaza from Dar es Salaam, Tanzania
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