27 December 2012

Tanzania: Shilling Gains On Strong Demand

THE shilling continued gaining against the declining dollar demand during the festive season, receiving also strong support from the inflows of tax payments by corporate firms disbursed normally at the end of the quarter.

The Tanzania Securities Limited (TSL) in its daily market commentary stated that the shilling remained stable against the dollar to trade at a range of 1,564/- and 1,579/-. The shilling also gained against other major world currencies.

"The shilling appreciation is also supported by declining dollar demand as we enter the festive season. We expect the local currency to make further grounds this week and the market to remain slightly volatile," remarked the Standard Chartered Bank in its Daily Market Commentary.

The bank stated further that the increased flows from the corporate sector and declining demand for the US dollar as business slows down towards the festive period also played a vital role in strengthening the shilling.

According to the Barclays Bank market report, the shilling chalked marginal gains against the greenback during Friday's trading session. This week saw a significant strengthening of shilling from trading above 1,600 to below 1,590. Bias is on the stronger shilling as we close the year.

"The market was quiet on Monday as demand for the greenback was muted throughout the session due to many players experience slow down due to the upcoming holidays. The USD/ TZS pair opened at 1,580/88 levels and closed the same," stated the report.

Meanwhile, in the local money market according to the NMB e-markets the overnight rates pushed higher to trade closer to the 10 per cent mark, with banks showing signs of tighter liquidity and demand for long-term funds as large tax payments by corporate get underway.

The local money market was tight during the early hours on Monday, this week but liquidity levels improved towards close of the session. About 53bn/- was traded with rates being at a high of 7 per cent and low of 5.50 per cent.

To stabilize the local currency that experienced high volatility, the Bank of Tanzania (BoT) applied the tightening stance policy to contain the pressure that impacted negatively on the economy due to increased costs of imports as well as the prices of various commodities in the local market.

However, towards end of this year, the BoT eased the tightening stance to leave the market forces determine the value of the shilling in the circulation.

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