31 January 2019

Tanzania: BoT Allays Fears On Shilling, Foreign Reserve

The Central Bank said the recent depreciation of the shilling against the US dollar and other major currencies is seasonal due to declined hard currency inflows from tourism and agricultural sectors.

The Bank said in a statement yesterday that the shilling would strengthen further against the dollar when earnings from tourism and export pick-up.

"The Bank of Tanzania wishes to inform the public that the current movement in the exchange rate is a seasonal phenomenon related to low foreign exchange earnings from tourism and export crops."

"This is a common trend that usually normalizes in the second half of the year when earnings from tourism and exports pick-up. In addition, the US dollar has recently been appreciating against major currencies," it said in the statement.

It said it was not true that the shilling was in crisis or the foreign exchange reserves are inadequate as suggested in some discussions in newspapers and the social media.

The local currency started the year strong after closing 2018 trading at 2,268/2,291, according to the Bank of Tanzania (BoT) indicative rates.

However it weakened against the US dollar from the second week of January amid growing demand of the green buck in the market due to its declined supply.

BoT Indicative Foreign Exchange Market Rates showed the shilling traded at 2272/2294 yesterday.

Analysts contend that the plunge of the shilling could also be attributed to the growing strength of the US dollar against other currencies and increased imports for on-going mega infrastructure projects and industrialisation drive.

The Central Bank said there were adequate foreign currency reserves sufficient to cover 4.9 months of imports of goods and services well beyond the country and East African Community benchmarks "The Bank of Tanzania also wishes to inform the public that the country has adequate foreign exchange reserves, which are sufficient to cover 4.9 months of imports of goods and services. The import cover is well above the country and EAC benchmarks of 4 and 4.5 months, respectively," it said.

"It should be noted that exchange rate in Tanzania is determined in the market based on demand and supply of foreign exchange. The Bank of Tanzania periodically participates in the market to smooth out volatilities in the exchange rate that are not in line with economic fundamentals."

The Bank of Tanzania will continue to monitor developments in the exchange rate and ensure that participants in the foreign exchange market adhere to the rules and regulations governing the market.

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