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[TD="class: contentheading, width: 100%"]Shilling hits record low despite BoT intervertion
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[TD="class: createdate"] Monday, 24 October 2011 22:13 [/TD]
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By Alawi Masare
The Citizen Reporter
Dar es Salaam. The shilling hit a new, all-time low at Sh1,750 against the dollar yesterday despite last weeks central bank intervention meant to stop further depreciation. Bankers said the markets closed at 1,755.The weakening of the local currency for a fourth consecutive trading day, after minimal gains early last week has been attributed to an increase in demand for foreign currency from importers.Others said panic buying of forex by dealers at midday yesterday also contributed to the declining of the shilling. Experts say the freefalling shilling pushes commodity prices higher, making it harder for low-income earners to make ends meet.
The currency had gained as much as 0.6 per cent and traded at Sh1,685.5 against the dollar last Monday. It then reached Sh1,722.5 on Wednesday and lost further on Friday to trade at Sh1,733 against the dollar.
Bankers said they expect the weakening trend to continue to the end of the year as importers of both raw materials and oil build their stock and meet rising demand.
There has been an increase in the use of oil because of the power crisis that necessitates the use of generators as alternative sources of power. The government must find a lasting solution to the power crisis, said NBC managing director Lawrence Mafuru.
NMB treasury director Aziz Chacha said low supply of the greenback to the market is also to blame for the battering that the shilling is undergoing.
The demand of the dollar is not met by ample supply, so we expect the shilling to weaken even further, he said.
He said despite the expected decline, the shilling would strengthen towards the end of the month as firms convert forex to meet tax obligations an activity that results to creating additional supply of foreign currency.
Demand for foreign currency during same period tends to slow down as the concentration shifts to ensuring tax obligations are met.
The primary trend is for a weaker shilling. However increased supply and low demand at the end of the month could strengthen the currency, he noted.The weakening of the shilling persists despite the Bank of Tanzanias move to stop further decline starting last week, after months of hesitation.
Commercial banks and other forex dealers were obliged to release some of the foreign currency they had as their capital reserve (net open exposure requirement) were reduced to 10 per cent from 20.
BoT also started reducing the supply of the shilling in the economy by taking in 10 per cent of the billions of shillings of government money, which is kept as deposit in commercial banks. The bank rate was raised to 9.58 per cent from 7.58 per cent.
Economists say low supply of the shilling would push down the demand of foreign currencies, which is one of the causes for the weakening of local currency.
The central bank said the policy moves it had initiated would bring relief to the falling currency, but economists and bankers said the measures were merely cosmetic.
They suggested dealing with the main issues that are troubling the economy, such as low exports and power cuts.
They also warn that measures to tighten liquidity would result in high lending rates, thus increasing the cost of financing to the private sector. This is unhealthy to economic growth, they caution.
The central bank wants to reduce money from circulation, but this would result in higher rates across the board and that is not healthy to the economy, Mr Mafuru had said.
Dr Semboja Haji of the University of Dar es Salaam economics department termed the BoT actions as cosmetic measures aimed at stabilising the currency for a short term while the long-term economic problem was not addressed.
According to him, the current situation is a sign of microeconomic imbalance that may take the country back to an economic crisis.
We have diverted from the direction we had taken to 2008 and actually the way our economy is performing is the same as the performance in 30 years back. This is not the problem with the central bank alone as there are many factors contributing to the situation we are in, Dr Semboja had told The Citizen in an interview over the weekend.
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[TD="class: contentheading, width: 100%"]Shilling hits record low despite BoT intervertion
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[TD="class: createdate"] Monday, 24 October 2011 22:13 [/TD]
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[TD] digg
By Alawi Masare
The Citizen Reporter
Dar es Salaam. The shilling hit a new, all-time low at Sh1,750 against the dollar yesterday despite last weeks central bank intervention meant to stop further depreciation. Bankers said the markets closed at 1,755.The weakening of the local currency for a fourth consecutive trading day, after minimal gains early last week has been attributed to an increase in demand for foreign currency from importers.Others said panic buying of forex by dealers at midday yesterday also contributed to the declining of the shilling. Experts say the freefalling shilling pushes commodity prices higher, making it harder for low-income earners to make ends meet.
The currency had gained as much as 0.6 per cent and traded at Sh1,685.5 against the dollar last Monday. It then reached Sh1,722.5 on Wednesday and lost further on Friday to trade at Sh1,733 against the dollar.
Bankers said they expect the weakening trend to continue to the end of the year as importers of both raw materials and oil build their stock and meet rising demand.
There has been an increase in the use of oil because of the power crisis that necessitates the use of generators as alternative sources of power. The government must find a lasting solution to the power crisis, said NBC managing director Lawrence Mafuru.
NMB treasury director Aziz Chacha said low supply of the greenback to the market is also to blame for the battering that the shilling is undergoing.
The demand of the dollar is not met by ample supply, so we expect the shilling to weaken even further, he said.
He said despite the expected decline, the shilling would strengthen towards the end of the month as firms convert forex to meet tax obligations an activity that results to creating additional supply of foreign currency.
Demand for foreign currency during same period tends to slow down as the concentration shifts to ensuring tax obligations are met.
The primary trend is for a weaker shilling. However increased supply and low demand at the end of the month could strengthen the currency, he noted.The weakening of the shilling persists despite the Bank of Tanzanias move to stop further decline starting last week, after months of hesitation.
Commercial banks and other forex dealers were obliged to release some of the foreign currency they had as their capital reserve (net open exposure requirement) were reduced to 10 per cent from 20.
BoT also started reducing the supply of the shilling in the economy by taking in 10 per cent of the billions of shillings of government money, which is kept as deposit in commercial banks. The bank rate was raised to 9.58 per cent from 7.58 per cent.
Economists say low supply of the shilling would push down the demand of foreign currencies, which is one of the causes for the weakening of local currency.
The central bank said the policy moves it had initiated would bring relief to the falling currency, but economists and bankers said the measures were merely cosmetic.
They suggested dealing with the main issues that are troubling the economy, such as low exports and power cuts.
They also warn that measures to tighten liquidity would result in high lending rates, thus increasing the cost of financing to the private sector. This is unhealthy to economic growth, they caution.
The central bank wants to reduce money from circulation, but this would result in higher rates across the board and that is not healthy to the economy, Mr Mafuru had said.
Dr Semboja Haji of the University of Dar es Salaam economics department termed the BoT actions as cosmetic measures aimed at stabilising the currency for a short term while the long-term economic problem was not addressed.
According to him, the current situation is a sign of microeconomic imbalance that may take the country back to an economic crisis.
We have diverted from the direction we had taken to 2008 and actually the way our economy is performing is the same as the performance in 30 years back. This is not the problem with the central bank alone as there are many factors contributing to the situation we are in, Dr Semboja had told The Citizen in an interview over the weekend.
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