THE shilling strengthened significantly against the dollar on Tuesday, supported by inflows from tourism and coffee exports, money analysts have said.
The shilling, according to Bank of Tanzania (BoT), in the last one week appreciated by almost 3/- a US dollar from 1,580.15 of last Monday to 1577.98 of on Wednesday. National Microfinance Bank (NMB) said that the local currency stabilization was pushed by a sluggish demand from importers, which also kept the shilling away from risk.
"...the shilling is expected to gain more strength," NMB said in eMarket report issued on Wednesday .The bank warned: "We could see it face pressure from importers taking advantage of the cheap dollar to enter the market in the coming days or to enter into forward buying contracts."
Another bank, Standard Chartered said, the shilling continued its appreciation against the greenback as demand for the dollar further decreased. "...We expect the trend to continue and volatility to remain low," the bank said in its daily market report.
Barclays Bank said the shilling remained relatively unchanged against the dollar after a long weekend following public holiday. "Tuesday saw a quiet trading session, with low volumes in the interbank market," Barclays said in the daily report.
Tanzania Securities said the shilling is expected to remain strong for the reminder of the year because of recently downtick movement in prices and inflation.
"We are expecting Tanzania's current-account deficit to remain above 10 per cent of GDP in both 2012 and 2013, which will mean that the shilling will remain vulnerable to interruptions in aid and investment inflows," the brokerage firm said in a study named 'Equity Research Local Listed Banks.'
The research pegged its projection on the fact that historically the local currency held up well compared with some of its emerging market peers.
But it warned that the shilling remains vulnerable to shifts in investor appetite due to Tanzania's high current-account deficit, which is likely to increase in tandem with the higher oil prices and higher dependence on unreliable and unpredictable farm-based economy.