Tanzania Daily News (Dar es Salaam)

20 November 2012

Tanzania: Money Market Intervention No Big Deal

MUCH as the latest move by the Bank of Tanzania (BoT) to intervene in the money exchange market to save the free-fall of shilling is a right move, it offers nothing tangible to celebrate.

The shilling maintained a strong ground in the past ten months but failed to hold on in the last two weeks after sending strong signals across the money markets that the local currency was making huge gains against world major currencies.

According to BoT data, the shilling has been trading as low as 1,602/- per dollar since last Tuesday, forcing the central bank to take the strategic move to rescue the local currency from further decline.

Money market analysts argue that the shilling will drop further, thus pushing up prices of goods and services. This will trigger high inflation especially on fuel and food as the festive season draws closer. The oil bill alone consumes about 3,457.6 million US dollars or 27.05 per cent of the total imports.

The economy, which is growing at an annual average of 6 per cent, cannot afford frequent uncertainties in the money markets as in the present scenario.

This is because investors would always keep their dollars to create artificial shortage in anticipation of reaping maximum profit when the rates go up. Local manufacturers should, therefore, be given incentives to invest in high risk sectors to enable them pay back their bank loans and make profit.

The central bank report shows that the value of export of goods and services was 8,281.5 million dollars during the year ending August 2012 compared with 7,185.9 million dollars recorded during the corresponding period in 2011.

However, during the year ending August this year, the value of import of goods and services was 12,781.6 million dollars, compared with 10,817.8 million dollars recorded in the year ending August last year.

The increase was largely driven by oil imports, following a rise in oil prices in the world market coupled with an increase in domestic demand particularly for thermal power generation. The government must chart out strategies to ensure the country imports less and export more to bring in the much needed foreign currency.

Leaving the fragile market so freely to cheap imports will hurt the national economy badly. A solution must be found sooner than later.

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