Tanzania's shilling drops 20 per cent in five months

The shilling has 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 US dollar.

This shilling dropped to the historical low level of 2,070/- in the first week of this month from 1,732/- of January against the US dollar, according to the Bank of Tanzania (BoT).

On year-to-year basis ending June, according to BoT the shilling depreciated by 25 per cent as of yesterday data from Interbank Foreign Exchange Market (IFEM).

The shilling woes though favoured exporters, it heavily erode the purchasing power as the country as a net importer. The depreciation may push up inflation as prices such of fuel has already increased by 100/-.

At commercial level, the shilling closed last week at the record-breaking levels of 2,175/- against to the dollar as demand continued to climb.

The CRDB Bank said “the high dollar demands and interbank activities are still putting a lot of pressure on the shilling to depreciate against the greenback.”

The shilling closed the session at the record-breaking levels of buying 2,165/- and selling 2,175/- against the dollar. 

Those who are prodepreciation argued that when the currency slide down, exports are sold at discount thus favouring those in that particular sector to increase productivity.

“This is good for the economy as exporters gain more, therefore depreciation acts as incentive to increase productivity,” said Dr Charles Kimei, Managing Director of CRDB Bank.

Despite Tanzania being a net-importer, he urged that, when the shilling goes down it is the time to take that opportunity to increase export output and elevate the country’s export position.

Also, the shilling depreciation has favoured foreign investors’ participation on Dar es Salaam Stock Exchange (DSE), who are buying more shares as their involvement has increased by 91.35 per cent in the first quarter.

Market analysts have it that the shilling’s depreciation works in favour of foreign buyers who now get more shillings when changing their dollars to have more purchasing power.

On the other hand, foreigners get little when selling their shares at the current exchange rate thus holding their sales. 

Mzumbe University Senior Economics Lecturer, Prof Honest Ngowi, said the shilling’s depreciation has far-reaching effect on the economy as a whole since the country is a net importer.

“If the shilling goes down, imported goods automatically becomes expensive to push inflation up,” Prof Ngowi said.

Meanwhile, rising food prices pushed Tanzania’s annual inflation to 5.3 per cent in May from 4.5 per cent in April, the statistics office said yesterday, just above the government’s target of 5 per cent by June. Food is the biggest driver of prices in the country among the basket of goods and services used to measure the inflation.

Mr Ephraim Kwesigabo, director at the National Bureau of Statistics (NBS), told a news conference the rate went up due to a faster rise in prices of major food commodities.

“Food items whose prices increased include maize flour, fresh fish, cooking banana’s and round potatoes,” he said. 

The food and non-alcoholic beverages inflation rate increased to 8.5 per cent in May from 7.1 per cent in April. The month-on-month inflation rate for May increased by 0.4 per cent from an increase of 0.8 per cent in April.
Source: Daily News, reported from Dar es Salaam, Tanzania
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