THE shilling continued to depreciate against the US dollar and other major currencies despite efforts by the central bank to halt and reverse the trend.
The Governor of the Bank of Tanzania (BoT), Professor Benno Ndulu, said movement of the shilling largely depended on market forces and that does not reflect failure of the country's monetary policy. The measures, he said, have significantly slowed down depreciation in the last 14 months as the government took a tight monetray stance.
The BoT Governor, Prof Benno Ndulu, said over the weekend that measures managed to strengthen the shilling as the annual -12 months-depreciation at the end of January was only one per cent. "The measures have considerably slowed down the rate of depreciation," Prof Ndulu told the 'Daily News' refuting claims that monetary measures taken to curb depreciation of the shilling fall in the last 14 months have failed.
The shilling sunk to the lowest level of over 1,800/- in October 2011, compelling the central bank to tighten liquidity in circulation in a bid to reverse the trend. Data shows that for the past 14 months, since December 2011, the exchange rate of the shilling against dollar remained stable in comparison with the depreciation for the previous year and in comparison with many currencies including those of major trading partners.
The Governor said before instituting the monetary measures, in the 12 months to December 2011 the shilling had depreciated by nearly 15 per cent. BoT data shows that while the shilling depreciated by 1.0 per cent in the 12 months ending January, the Kenyan shilling depreciated by 4.6 per cent and the Ugandan shilling by 11.7 per cent.
At the same time the exchange rate of South African Rand against the dollar depreciated by 11.8 per cent, while that of Indian Rupee depreciated by 6.8 per cent and that of the Japanese yen by 18.6 per cent during the same period. The commercial banks quoted the local unit at 1624/1634 against the dollar, which was higher than Wednesday's close of 1620/1630.
The CRDB Bank said on its Market Highlight of last Friday that the shilling continued to depreciate against the greenback last Thursday as there was lack of inflows in the market while the demand from oil sector was high. Standard Chartered Bank said "we expect a similar trend today (last Friday), however, the shilling might recover some of the losses later on during the day".
Another bank, the National Microfinance Bank (NMB) said the shilling was under substantial greenback-demand pressure seen from the manufacturing, energy, and telecom sectors. "The dollar remained well in the interbank, hinting at additional weakness to the local currency in the near-term," NMB said on its e-Newsletter last Friday.
The central bank, however, acknowledged some significant increase in the demand for foreign exchange among non-typical users. "Typically we paid for power generation in shillings," Prof Ndulu said "currently the Independent Power Producers (IPPs) - other than TANESCO are mostly paid in foreign exchange - since they have to meet their obligations in foreign currency".
For instance, BoT said, the weekly demand of TANESCO to purchase power from the IPPs and to pay for their fuel import bill is substantial in excess of 4.0 million US dollars. Thus putting additional pressure on the amount spent on importing expensive fuel for transportation and industrial use.
The annual bill for importing expensive oil still stands at more than 3.3billion US dollars (5.28tr/-) a year-almost half of the total country budget of 13tr/-. Furthermore, foreign contractors building roads and other infrastructure funded by domestic revenue have to be paid and they typically externalize their revenues adding to the demand pressure for foreign exchange.