Tanzania: Shilling rallies on rush selling of dollar

The quick recovery of shilling in the past three days has been described as a rush sale after US dollar-holders figured out of a more supply of the greenback at the foreign exchange market.

The shilling went down to an historical low level of nearly 2,400/- against US dollar a few weeks ago, but it halted the trend last Thursday and gained by almost 300/- ever since to between 1,900/- and 2,000/-.

The Zan Securities Chief Executive Officer, Mr Raphael Masumbuko, said that when the shilling depreciation begun most people restored the value of money to greenback and created a local currency scarcity.

“The buy-and-hold dollar phenomenal butted with the Central Bank tight money policy to mop out excess liquidity.

“This overtime create a liquidity problem in the economy manifested by government securities under subscription,” Mr Masumbuko said.

The CEO said once the inflows of US dollars from agriculture and money borrowed overseas for 2015/16 budget, the supply of greenback increased overnight while demand for shilling raised as well.

The Orbit Securities Managing Director, Juventus Simon said since demand for the dollar was high, once the market’s supply for the same increase the appreciation is automatic a ‘quick recover.’

“The shilling lost was too fast, so we anticipate the gaining to be in a similar speed, if demand and supply theory holds,” Mr Simon told ‘Daily News’.

Both Mr Masumbuko and Mr Simon predict that if all remains equal, in short term, the shilling will retain its January rate of between 1,700/- and 1,800/- in the few days to come from the current rate of between 1,900/- and 2,100/-.

CRDB Bank predicted in its market highlights that the shilling will continue gaining strength against the greenback, but with some volatility. 

CRDB Bank said that the interbank activities and end of month flows caused the shilling to exhibit another quick session of appreciation against the dollar on Monday.

“The local currency closed Monday’s trading session stronger by another 100 shillings at the levels of 1960/2010 to the dollar, compared to its opening levels of 2060/2210,” the bank said.

Bank of Tanzania (BoT) was expecting some 800 million US dollars to be on its vaults by end of this month after borrowing from South Africa’s Rand Merchant Bank and China Development Bank on behalf of the government for implementation of 2015/16 budget.

The inflows was expecting to bolster foreign exchange reserves as the country shores up a weakening currency and plugs the budget deficit after revenue collection fall short.

The shilling depreciated by almost 20 per cent in the first five months of this year, following high demand amid low supply of foreign currency - especially the dollar.

While on year-to-year basis ending June 8, 2015, according to BoT the shilling depreciated by 25 per cent based on the data from Interbank Foreign Exchange Market.

To reverse the depreciation trend, BoT also introduced tight monetary stance that saw the central bank cuts commercial banks’ net open position to 5.5 per cent from 7.5 per cent of liabilities, increase banks statutory reserve requirement from the current 8.0 per cent to 10 per cent of total deposits.

Source: Daily News, reported from Dar es Salaam, Tanzania

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