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Local shilling remains strong

The shilling, according to the Bank of Tanzania’s (BoT) foreign exchange data, has since last Monday remained strong, trading between 1,598/- and 1,591/- a greenback.

The local currency opened the year at 1,587/- a US dollar, the lowest level since last October when it reached 1,870/-, the highest level in 45 years. The central bank data show that in the entire month of January, the shilling was fluctuating between 1,580/- and 1,590/-, sending signals that it might be its new equilibrium.

Standard Chartered Bank said in its Daily Market commentary on Tuesday that a similar trend is expected to continue with moderate level of volatility. Nevertheless, the predictability of the shilling is trickier as it is walking on at a random path due to the imbalance of the country’s current account, which is in favour of imports.

Tanzania is a net import economy. At the end of last October, current account deficit widened by 65.4 per cent to 4.072 billion US dollars compared to the previous year’s ending October 2010. “This development was mainly driven by widening gap in goods account and delay in disbursement of funds by development partners,” BoT says in monthly economic review of November 2011.

Tanzania Securities hinted that the shilling weakened slightly last week against the dollar as demand for the greenback by importers kept on rising. In line with inflation developments, BoT sold a total of 104.0 million US dollars last October compared to 93.6 million US dollars sold in the preceding month.

The central bank accounted for 71.9 per cent of the total sales in the foreign exchange market. Meanwhile, BoT was again in on Repurchase agreement (Repo) and managed to mop up 5bn/- for a two-week agreement at five per cent. The interbank cash market has recorded down trend on the overnight rates, trading between 1 per cent and 10 per cent levels.


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