The Standard Chartered Bank said in its daily commentary that the market was still experiencing slight liquidity tightening that has played right into the hands of strong exchange rate. “The scenario has helped the shilling gain quicker and lose strength slower.
We expect the shilling to hold on to its gains and perhaps some more strengthening,” stated the report. Shilling stabilisation could persuade money mongers to shift their investments on debt instruments like treasury bonds and treasury bills as well as overnight borrowing and repurchase agreements (Repos).
The repo rates, for which most commercial banks remain the giant investors, are currently ranging at an average rate of between 22 and 24 per cent. For analysts, exchange rate stabilisation is significant for the net importer country like Tanzania and also as it makes it easier for businesses to function at full capacity.
Although Tanzania is the net-importer, the Central Bank (BoT) maintained that it was crucial to look critically at the level of exchange rate to go above neighbouring countries dealing with similar export products.
The BoT noted also the importance of having a close eye on the performance of the shilling to strike the balance between exports, imports and other sectors like tourism whose role in the economy is indispensable.
Last week, the local currency traded at a band ranging between 1,534/- and 1,585/- against the US dollar, the rates critics see as too high but enjoying support from the central bank, which says high rates stimulate economic growth. Analysts want the shilling exchanging at between 1,000/- and 1,200/- against the US dollar as a way of taming inflation that dropped slightly to 19 per cent in March from 19.4 per cent of February, this year.