Shilling hits record lows on higher dollar demand

The shilling has weakened to fresh record lows due to a myriad of challenges, including US dollar strengthening and fears associated with general election risks in October.

The local currency depreciated to lowest levels after it crossed the 1,900/- mark for the first time since the shilling was introduced some 50 years ago.

CRDB Bank says the shilling ended the last week on a wrong footing opening at 1900/1910 and closing at 1910/1920 ‘a record breaking’ levels against the US dollar - a major trading currency in the country.

The bank, the second largest in the country, says the shilling was still under a compounded pressure as there is little inflow of the greenback.

“The local currency is still under pressure due to little currency inflows and high demand,” the bank says on its daily Markets Highlights.

On a previous week, Friday-to-Friday basis, according to CRDB, the shilling depreciated by 60/- compared to the previous Friday trading of 1850/1860 against the US dollar.

Prof Honest Ngowi, an economics lecturer with Mzumbe University, said the shilling is affected by a number of variables ranging from poor export inflows, donors’ money and general election uncertainty.

“I haven’t seen the (shilling) figures but election factor should not be ruled out - as people are storing their value of money in foreign currency to avert (October’s) election risks,” Prof Ngowi said.

He said the central bank should intervene to cool off the market demand as shilling depreciation has far-reaching effect on the economy as a whole, since the country is a net importer.

“The depreciation will increase inflationary pressure as prices of imported goods price are going to shoot up,” Prof Ngowi said.

The inflation increased by 0.1 percentage point to 4.3 per cent in March, from 4.2 per cent recorded in February.

In this year’s first quarter, the shilling slid down some 5.0 per cent, driven mostly by the strengthening of the US dollar against major currencies, to 1,795/08 as recorded by Bank of Tanzania (BoT).

Meanwhile, the Kenyan shilling lost ground against the dollar and remained stuck at three-year lows on Monday, due to demand for the US currency by corporate customers.

At 0700 GMT, commercial banks posted the shilling at 93.60/70 - near levels last seen in November 2011 - down from Friday’s close of 93.40/50.

Chris Muiga, a trader with National Bank of Kenya, said the local currency was, however looking oversold, meaning it could attempt a correction.

“We might retrace in the coming days,” he said. The shilling is down 3.54 per cent against the greenback so far this year.

The dollar’s global strength has also put pressure on the shilling over the past several months, while Kenya’s main foreign currency earners have been floundering.

Tourism has been affected by reduced earnings owing to militant attacks in the country and horticulture, while poor rains have hurt the agriculture sector.
Source: Daily News, reported by Abduel Elinaza, from Dar es Salaam, Tanzania
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