Dar es Salaam — The Tanzania Shilling is expected to hold firmly for the rest of the year on the back of the recently downtick movement in the prices and inflation, money analysts have said.
According to a research conducted by a brokerage firm, Tanzania Securities, dubbed 'Equity Research Local Listed Banks' the situation has recently started, especially in the second quarter, to improve as the Shilling has been gaining against various foreign currencies including the Dollar.
"We believe that, the slight downtick movement in the prices and inflation in a whole in recent months will continue to hold for the rest of the year," the equity research local listed banks report said.
"We expect the Tanzanian shilling to hold steady for the remainder of 2012," the study, conducted by the firm's CEO Moremi Marwa and market analyst Magabe Maasa, says.
However it warned that while the Shilling has historically held up well compared with some of its emerging market peers, it remains vulnerable to shifts in investor appetite due to Tanzanian's high current-account deficit.
The deficit is likely to increase in tandem with the higher oil price, and higher dependence on the unreliable and unpredictable farming-based economy.
"The current account deficit, however, remains a weakness to the overall economic performance, leaving Tanzania reliant on foreign aid and investment inflows," the research shows.
Tanzania's current-account deficit, according to the research, is expected to remain above 10% of GDP in both 2012 and 2013, which will mean that the Tanzanian shilling will remain vulnerable to interruptions in aid and investment inflows.
Mid last week, National Microfinance Bank (NMB) said the local currency strengthened slightly against the Dollar with major market players in the energy and manufacturing sector remaining out of the market due to the comparatively high level of the US dollar/shilling pair.
"Further strengthening of the shilling is likely, although sizeable US dollar demands around Tsh 1,585 is likely to control the shilling rally," NMB said on its e-Market report.
The shilling firmed slightly against the dollar on Tuesday last week, with interbank demand for dollars thinning off,
The bank suggested that the Shilling is likely to remain stable because of a shrunk demand from the corporate sector, leaving the local currency to trade in a peter-out band.
Barclays Bank e-newsletter showed that shilling/US dollar continued to trade in a tight range, with no significant strength from the shilling.
"The market today (Tuesday last week) saw rather quiet activity with no significant strengthening of the shilling," Barclays said. The bank quoted the shilling closing the day at 1581/1603 range.
The bank also said other international currencies --especially the Euro and Sterling Pounds -- continued high level of fluctuation but subdued at the end of the market day to close at the same levels as opening.
The Bank of Tanzania (BoT) indicates that the shilling opened the month at 1577.61 but slipped to 1583.51 against the US dollar as of Tuesday last week.