Shilling Remains Steady as US Dollar appreciates

THE shilling has withstood a thousand odds to remarkably hold steadily against the US dollar from January to date when a basket of currencies tumbled in global markets.

The local currency merely depreciated by 1.0 per cent from 2,309/- to 2,319/- in the last nine months thanks to the diversified sources of foreign inflows.

Foreign inflows led by gold, tourism, manufacturing and agricultural sectors backed up the shilling strongly since January to register minute fluctuation amid insignificant depreciation.

Alpha Capital Head of Research and Financial Analytics, Imani Muhingo, said the shilling remarkably demonstrated a stable stance due to the broad sources of foreign inflows.

“The shilling has been relatively holding ground against the greenback in the Interbank Foreign Exchange Market with a (minute) depreciation since the beginning of the year,”

Mr Muhingo told yesterday.

The shilling depreciated slightly since January. The story was not the same for African currencies. By last week Ghanaian cedi tumbled by 65 per cent as the West African country struggles with a widening deficit, debt repayments and increasing cost of debt.

During the same time, the South African rand dropped by 12 per cent, the Nigerian naira by 4.5 per cent, the Ugandan shilling by 7.9 per cent and the Kenyan shilling by 6.5 per cent.

“Apart from Europe, African currencies are also feeling the heat,”

Mr Muhingo said.

On the other hand, the shilling appreciated by 16 per cent against the pound sterling from 3,113/- to 2,601/- and Euro by 13per cent from 2,615/- in January to 2,265/- yesterday.

The matter started when the US Federal Reserve hiked interest rates for fixed income securities making them more attractive hence prompting a transfer of funds from the rest of the world to the US thus strengthening the greenback.

Two months ago, the Euro hit parity with the US dollar for the first time in the last two decades. By last month the British pound saw its six-year highest depreciation against the greenback while the Japanese yen hit a 24-year low leading to the first authorities’ intervention in the forex market since 1998.

An economist-cum-investment banker Dr Hildebrand Shayo told  it was important to be aware that movement in the exchange rate serves to correct any imbalances in the market.

“Implication of strong shilling against the greenback to the economy reduces the competitiveness of our exports which could dampen economic growth…

“It is, however, important to understand that appreciating currency is like a tax hike,”

Dr Shayo said.

The Bank of Tanzania (BoT) issued a statement last week saying the gross official reserves remained adequate at 5,092 million US dollars in August, sufficient to cover about 4.6 months of imports.

The forex was boosted by exports which staged a good picture across the board where goods and services amounted to 11.22 billion US dollars for the year ending July from 8.927 billion US dollars in a similar period last year, driven by non-traditional exports and services receipts.

“The increase was mainly in the exports of iron and steel, textiles, horticultural products, fish and fish products and maize,”

BoT Monthly Economic Review showed.

Gold, which accounted for 38.3 per cent of goods exports, was 2.71 billion US dollars, lower than 2.99 billion in the corresponding period.

Services receipts amounted to 4.14 billion US dollars in the year ending July almost double compared to 2.48billion in the corresponding period last year, boosted by travel and transport receipts.

Travel receipts edged up to 1.96 billion US dollars from 929.5 million US dollars, consistent with the rise in tourist arrivals by 72.4 per cent to 1,208,559.

“The high travel receipts signal the recovery of the tourism sector though still threatened by the war in Ukraine,”

the report said.

As for inflation, the Monetary Policy Committee (MPC) recently observed that

“It sustained a gradual increase and remained at a single digit”.

The inflation edged up to 4.6 per cent in August up from 3.6 per cent in March, which was below the 5.4 per cent projection for this fiscal year.

“The trend is attributable to rising commodity prices in the world market, particularly food and oil prices,”

the MPC report said.

The MPC expects inflation to remain consistent with the targets throughout this fiscal year, due to the recent easing of oil prices in the world market, expected stability of the exchange rates, and moderation in food prices.

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