1 July 2012

Tanzania: Agriculture, Travel Dividends Strengthen Tanzania Currency

Dar es Salaam — The increased inflows of the greenback from agriculture exports, travel receipts and the central bank tight liquidity has tremendously strengthened the Shilling against the Dollar.

According to a commercial banks report, the Shilling at about Tsh1,587 against the US dollar on Monday and 1,588 on Tuesday, stronger than Tsh1,594 towards the end of the previous week.

"The outlook for next week (this week) is that the Shilling will continue to gain strength," chief dealer at First National Bank Tanzania Patrick Kapella said.

The Shilling on Wednesday held steady against the Dollar as investors settled T-bills obligations, and because of inflows from agriculture exports and Non-Government Organisations while there was moderate importers' demand for the same day.

The pair traded at 1,590 throughout the day but closed at 1,588. On Friday, the shilling traded flat against the dollar due to steady foreign currency inflows against moderate demand of the greenback.

"Tanzania has maintained its position trading between 1575/1590 levels with a positive outlook next week due to quarterly tax payments and dollar month end inflows," NMB treasury sales dealer, Jeremiah Lyimo noted

"As we are heading to the last week of the year, we expect the shilling to strengthen further on the back of demand from multinational firms for both tax and salary payments," the daily commentary by Standard Chartered Bank said.

Moderate level of volatility should be expected," stated the report. Also the shilling held steadily against the dollar boosted by lower dollar demand ahead of the festive season and high rates in the money markets as investors settled their Treasury bills obligations.

The East African Business Week survey in Dar es Salaam Bureau de Change found that during last week, the shilling traded a minimum of Tsh 1,575 against the dollar last week and maximum of Tsh 1,592.

Apart from tax obligations when dollar is chasing the shilling, financial market analysts said during the period most of the decisions will be on year end holidays and many foreign transactions might be shelved. Most Christmas goods are imported between October and November to leave December to market dealings with mainly importers of fuel and airtime vouchers. The BoT tight liquidity measures saw the shilling appreciating to a two-month high of below Tsh 1,600 against the US dollar from the lowest point of Tsh 1,850 two months ago when the local currency appeared to tumble out of control.

The BoT tools included rising interest rates, reducing government deposits in commercial banks, as well as reducing the capital adequacy of forex dealers.

The Bank's interventions on falling shilling came amid accusations that some financial institutions were involved in speculation and illegal trading practices which led to the weakening of the local currency.

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