Tanzania's shilling finally gains after freefall spree

The shilling, which fell to a record low of Sh2,400 against the dollar last week, jumped yesterday, sending a ray of hope to millions of Tanzanians that the cost of imported goods will fall appreciably. 

The shilling traded against the greenback for between Sh2,208 and Sh2,400 last week, but had bounced back to hover around the Sh1,900 mark yesterday in what experts said was an unusual rally.

Last week’s plunge sent shockwaves through the economy, and there was speculation the local currency could fall further to between Sh2,500 and Sh2,800 to the dollar by the time the country goes to the polls in October.

But in what is likely to bring about a sigh of relief, the shilling gained to trade at between Sh1,967 and Sh2,205 yesterday.

The director of economic and policy research at the Bank of Tanzania, Dr Joseph Massawe, confirmed to The Citizen yesterday that the local currency gained after the central bank’s intervention.

“We have taken the right steps, and we hope the local currency will now start to do well,” he said.

He reiterated the bank’s position that the fall of the local currency had been precipitated by an improvement in the economy of the United States. 

With an improving US economy, global investors saw the dollar as their safe haven, thereby creating an increased demand for the vehicle currency, resulting in the depreciation of other currencies.

Dr Massawe said local dealers took advantage of this development and embarked on speculation that saw the shilling become Africa’s second fastest depreciating currency this year after Ghana’s cedi.

The speculators, according to Dr Massawe, started buying dollars in large sums in the hope of making tidy profits later. By doing so, they were creating an artificial scarcity of the dollar in the market.

“We decided to mop up the high liquidity of the local currency in the market to match with the dollars that are available,” he said.

This is being done through tightening the monetary policy in such a way that commercial banks’ statutory minimum reserves with the central bank have been increased from eight per cent to ten per cent.

Dr Massawe also said this was the time dollars started coming in from the tourism and agriculture sectors.

On the $800 million in loans to be borrowed from the Rand Merchant Bank of South Africa and China Development Bank Corp, Dr Massawe said the money would help to bolster the country’s foreign-exchange reserves.

“But since it comes in dollars, it will also help to boost the local currency, but its primary purpose is to plug the budget deficit,” he said.

With the government coming up with new taxes as it seeks to collect a total of Sh22.5 trillion from both domestic and foreign sources to finance the 2015/2016 Budget, it is largely anticipated that prices of imported products will go up further any time starting tomorrow when the fiscal year starts.

Among the measures that include an additional Sh100 (Sh50 as fuel levy and diesel, plus another Sh50 as fuel and road tax) on every litre of petrol, diesel and kerosene, signalling that prices of petroleum products would go up by not less than Sh100 any time starting tomorrow.

BoT figures indicate that the country may have imported oil worth $3.216 billion during the year ending April 2015. This, plus $4 billion and some $2.6 billion import bills for capital goods and consumer goods respectively are sending the local currency to nothing, thus raising the cost of living.

Meanwhile, elsewhere in East Africa, the Kenyan shilling weakened yesterday as importers bought dollars to meet their end month requirements, while stocks rose.

According to a report by the Business Daily — a Nairobi-based daily financial newspaper — at close of trade yesterday, commercial banks in Kenya quoted the shilling at 98.70(Tsh2,072.70), to the dollar versus Friday’s close of 98.40/50.(Tsh2,066.40).

The trader said the currency is likely to hover between the 98 and 99 levels over the course of the week.
Source: The Citizen, reported by Samuel Kamndaya, from Dar es Salaam, Tanzania

Share on Google Plus

About Unknown

This is a short description in the author block about the author. You edit it by entering text in the "Biographical Info" field in the user admin panel.