9 January 2013

Tanzania: Shilling On Relative Stability

THE Bank of Tanzania (BoT) interventions and slight easing of demand for the dollar in the market led to the shilling's relative flat trading this week.

According to Standard Chartered Bank daily market commentary, demand for the dollar was on Tuesday expected to pickup, with volatility remaining low to medium.

"Trading activity was limited on Monday, with the shilling/dollar pair trading range bound through the session. The central bank was in the market selling dollars," stated the Barclays Bank in its market report.

To stabilize the local currency that experienced high volatility in recent years, BoT has been applying 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, the BoT eased the tightening stance towards end of last year purposely to leave the market forces determine the value of the shilling in circulation. During the festive season, the local currency made strong gain against the declining dollar demand, receiving also strong support from the inflows of tax payments by corporate firms disbursed normally at the end of the quarter.

The NMB e-markets report states that the dollar versus local currency traded within a tight range during Monday's session, with oil sector pushing up demand for the US dollar to close at the 1592/1600 range.

"As shilling liquidity eases however, we can expect the oil and manufacturing demand to put a dominant strain on the shilling in the near-term," stated the report.

In the local money market, overnight lending rates remained around the 10 per cent level, with liquidity remaining tight following the year-end payments last week. Similarly, a 7-year bond issued by Central Bank worth 55bn/- is in the market today with expectations of the yield to rise significantly due to low liquidity and increased appetite for higher yields.

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