Market forces should be left to return the shilling to equilibrium as administrative measures offer only short-term relief and may affect other economic fundamentals, according to a top financial analyst.
The CRDB Managing Director, Dr Charles Kimei (pictured), told reporters in Dar es Salaam that administrative measures such as tightening of the liquidity provide no long-term solution to the problem but lead to increasing of interest rates.
He said other interventions have their contribution on correcting the trend of the shilling but they run the risk of choking other economic fundamentals, especially interest rates.
“The market (interbank foreign exchange) should be left to correct the exchange rate, as on other side of the shilling, depreciation is a blessing for exporters and foreign direct investments,” Dr Kimei said.
“Exporters gain more when shilling depreciates… and it’s a time to move from import based economy dependency to export… it will not be an overnight thing but if the players are recognized we will be there.”
Dr Kimei, also the Tanzania Bankers’ Association Chair, said when central bank intervenes by reducing money in circulation to match with forex, it creates a money scarcity which leads to increase of lending rates.
“This move increases the price of funds in the market to automatically push up interest rates — including for government securities,” Dr Kimei, an economist, told reporters.
The banker cum economist said people should concentrate on interest rates which are fundamental component of economic growth as it affects every productivity sector than shilling fluctuation.
“For the economy to grow at 15 per cent, proper money price and resource allocations are fundamental than currency fluctuation,” Mr Kimei said, “we need to increase productivity and shilling deprecation will work in our favour.”
The shilling since January went down by over 5.0 per cent to historical low of 2,020/-. The rate causes various stakeholders to call for BoT to intervene as the level is chocking the economic growth.
But Dr Kimei called for stakeholders to let the central bank to work on bringing the shilling to equilibrium instead of pressurizing to take administrative measures —including pumping forex to cool foreign exchange market.
“Pumping dollars to the exchange market is a short term measure, is not sustainable… in a long run depleting foreign reserves,” Dr Kimei said calling for stopping to import goods and services which could be produced locally.
The CRDB Managing Director, Dr Charles Kimei (pictured), told reporters in Dar es Salaam that administrative measures such as tightening of the liquidity provide no long-term solution to the problem but lead to increasing of interest rates.
He said other interventions have their contribution on correcting the trend of the shilling but they run the risk of choking other economic fundamentals, especially interest rates.
“The market (interbank foreign exchange) should be left to correct the exchange rate, as on other side of the shilling, depreciation is a blessing for exporters and foreign direct investments,” Dr Kimei said.
“Exporters gain more when shilling depreciates… and it’s a time to move from import based economy dependency to export… it will not be an overnight thing but if the players are recognized we will be there.”
Dr Kimei, also the Tanzania Bankers’ Association Chair, said when central bank intervenes by reducing money in circulation to match with forex, it creates a money scarcity which leads to increase of lending rates.
“This move increases the price of funds in the market to automatically push up interest rates — including for government securities,” Dr Kimei, an economist, told reporters.
The banker cum economist said people should concentrate on interest rates which are fundamental component of economic growth as it affects every productivity sector than shilling fluctuation.
“For the economy to grow at 15 per cent, proper money price and resource allocations are fundamental than currency fluctuation,” Mr Kimei said, “we need to increase productivity and shilling deprecation will work in our favour.”
The shilling since January went down by over 5.0 per cent to historical low of 2,020/-. The rate causes various stakeholders to call for BoT to intervene as the level is chocking the economic growth.
But Dr Kimei called for stakeholders to let the central bank to work on bringing the shilling to equilibrium instead of pressurizing to take administrative measures —including pumping forex to cool foreign exchange market.
“Pumping dollars to the exchange market is a short term measure, is not sustainable… in a long run depleting foreign reserves,” Dr Kimei said calling for stopping to import goods and services which could be produced locally.
Source: Daily News, reported from Dar es Salaam, Tanzania
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