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| BoT's Governor Prof Beno Ndullu |
The Bank of Tanzania (BoT) seems to have succeeded in capping interest
rates, a good step that will entice back money traders and bring the market
into equilibrium.
Through capping, overnight trading rates have recently dropped to trade
between one and 12 per cent levels while exchange rates have not gone beyond
1,610/- a dollar. “The BoT seems to be succeeding in keeping a cap on rates…
liquidity has continued to improve,” Standard Chartered Bank said over the
weekend on its Daily market report.
The bank added: “Overnight rates have come in lower trading at 1 per
cent and 12 per cent levels. We expect auctions to be well received and demand
to move towards the far end of the curve”.
The overnight, a window through which banks borrow from each other,
reached a 10-year high rate following tight money measures to contain the
falling value of the shilling and high inflation rates.
On average, the rate hit 35 per cent at the first week of January,
which was the highest since the financial sector was liberalised over ten years
ago when the rate was around 5 per cent. After recording an all-time low
against the US dollar in October, the shilling jumped back lately, ending the
week trading at between 1,590/- and 1,609/- against a greenback. Last October
the shilling wobbled past a 1,800/- mark.
The strength of the shilling has been attributed to the central bank’s
intervention and strategic pegging of the exchange range for oil importers,
thus easing market speculations. The BoT move is to enable oil importers buy at
an affordable exchange rate because the sector’s demand for dollars is huge,
thus affecting the shilling movement.
Foreign exchange analysts argue that without the high demand of the oil
sector on the interbank, needs in other sectors for the foreign currency match
very well with the current supply. “The shilling continued trading relatively
flat yesterday on the back of matched flows in the interbank and corporate
markets,” Standard Chartered Bank said.
Mid last October, the central bank announced several measures to curb
the shilling down-spiral trend and high inflation rate that was derailing some
of macroeconomic fundamentals. The measure included the reduction of the core
capital of foreign exchange dealers from 20 per cent to 10 per cent to
facilitate the release of more foreign exchange into the market to strengthen
the shilling.
The central bank also raised discount rate—commercial banks’ borrowing
rate to BoT)—by 200 basis points to 9.58 per cent to mop up excess money from
circulation, resulting in lower inflation and a stronger shilling. The bank
increased cash reserve
requirements on government deposits from 20 per cent to 30 per cent.
This means that the BoT holds 30 per cent of all customer deposits at
commercial banks to reduce money circulation in the market. As the results of
tight liquidity measure, money in circulation dried up, pushing interest rates
on overnight, government securities, and commercial loans up.
However, stock brokers said the high coupon rate for government
securities are affecting the equity market dearly because on average dividend
rates are around 10 per cent compared to over 15 per cent of debt instruments.
“Investors will migrate to debt and fixed security incomes because of the high
yields offered and on top of that are risk-free instruments”, Tanzania
Securities Business Analyst Joel Nkya said.
To mobilize deposits, Mr Nkya said, banks have started to offer very
competitive rates on fixed deposits.
Source: Business Standard,www.dailynews.co.tz, reported by Abduel Elinaza
Source: Business Standard,www.dailynews.co.tz, reported by Abduel Elinaza
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