- Published on Wednesday, 28 December 2011 12:15
- Written by SEBASTIAN MRINDOKO
- Hits: 19545
THE shilling closed the week with further improvement against the US dollar and other major currencies as Bank of Tanzania (BoT) continued with a tight liquidity policy.
According to daily commentary by Standard Chartered Bank, the market closed on Friday at 1,585/- and 1,595/- on the back of the declining dollar demand. “As we are heading to the last week of the year, we expect the shilling to strengthen further on the back of demand from multinational firms for both tax and salary payments.
Moderate level of volatility should be expected,” stated the report. Also the shilling held steadily against the dollar boosted by lower dollar demand ahead of the festive season and high rates in the money markets as investors settled their Treasury bills obligations.
Apart from tax obligations when dollar is chasing the shilling, financial market analysts said during the period most of the decisions will be on yearend holidays and many foreign transactions might be shelved. Most of Christmas goods are imported between October and November to leave December to market dealings with mainly importers of fuel and airtime vouchers.
The BoT tight liquidity measures saw the shilling appreciating to a two-month high of below 1,600/- against the US dollar from the lowest point of 1,850/- two months ago when the local currency appeared to tumble out of control. The BoT tools included
rising interest rates, reducing government deposits in commercial banks, as well as reducing the capital adequacy of forex dealers.
The Bank’s interventions on falling shilling came amid accusations that some financial institutions were involved in speculation and illegal trading practices which significantly led to the weakening of the local currency. Some banks have been hoarding foreign currencies to create artificial shortages in order to reap maximum benefits.
The banks have been lending foreign currencies to non-resident entities, leading to shortages and further weakening of the shilling. However, the weakening shilling pushed up commodity prices that have made it difficult for families with fixed, low incomes to afford basic necessities.
Food prices have risen by more than 30 per cent since the beginning of the year. Given the high inflation rate and a weak shilling, which are double economic evils the country is struggling to get rid of, the coming year will start on a tough gear for many.