16 February 2017

Tanzania: Shilling Stabilised in 2016 On Increased U.S Dollar Inflows

Dollars inflows from cashew nut exports and improved liquidity from government spending contributed to shilling stability, which remained unchanged in the last quarter of last year.

According to the NMB Market Digest, the shilling traded at the same levels following continued dollar inflows from cashew nuts exports worth about 200 million US dollars (about 435bn/-).

However, the impact of the inflows was lighter compared to increased demand for the local currency that was a result of improved liquidity in the market from government spending.

The pair in the last quarter closed at 2181 which is lower than 2182 that staged in the preceding quarter. Unlike most of the year end whereby local currency appreciates as liquidity tights, 2016 was different leaving the US dollar/shilling pair trading flat.

"Overall, the currency was stable in 2016 on account of limited volatility, tight liquidity throughout the year which forced the central bank to participate on both sides of the market with a bias to buying US dollars in order to distribute the local currency liquidity," stated the report.

Also, despite an increase in global oil prices year on year basis from a close of 47.07 US dollars per barrel in 2015 to 58.04 US dollars per barrel in 2016 and oil being the major part of the country's imports, there was only limited volatility on the local currency. The country imports dropped adding to the stability of the local currency.

The shilling depreciated by only one per cent last year against 25 per cent depreciation seen in 2015. Similarly, the diminishing aid inflows had only limited impact on the shilling.

The decline of donor aid led to the need by the government to fund the budget domestically whereby the government focused to double revenue collection and hit the target of 16.3 per cent GDP in 2016/17 which is expected to curb the local currency depreciation.

Furthermore, the last quarter in 2016 witnessed the decreasing trend in money markets activities. Traded volumes in the quarter under review totaled 2.35tri/-, which is higher than 2.31tri/- recorded in quarter three.

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