SHILLING
depreciation is expected to narrow this year as the local currency will be
gaining from weaker US dollar and positive balance of payment.
BMI
Research, a Fitch Group Company forecast the shilling on average to depreciate
below 8.0 per cent against the US Dollar this year from an average of 22.4 per
cent last year which compelled the Central Bank to take measures to correct the
free-sliding.
“The
shilling will experience a much less rapid pace of depreciation in 2016 than in
2015,” BMI Research, a Fitch Group Company, said on its latest Tanzania Country
Risk Report.
The
document gave the reason behind less depreciation in this year as due to
“benefits from a weaker US dollar, positive balance of payments dynamics and
improved local sentiment.”
However,
the report showed that a major risk to the country economic outlook comes from
the weather. “Poor rains would not only exacerbate tight food supplies … but
would also once again hamper hydroelectricity production, raising costs for
businesses and by extension, consumers,” the report said.
The
country economy depends on agriculture and agro-exports inflows assist
smoothening shilling depreciation, while food inflation was the major driver of
rapidly rising headline inflation in 2011.
The
Bank of Tanzania (BoT) figures show that the shilling since January has
depreciated around 1.5 per cent to 2,192/97 of yesterday. BoT early this month
said the shilling was expected to strengthen this year as inflows are expected
to improve as trends show stabilisation.
The
central bank said currently trends show the shilling has find a new market
equilibrium which was good for economic stabilisation.
The
shilling has remained stable and expected to hold firm for the rest of the
week, thanks to BoT intervention and end of month inflows. CRDB Bank said on its
market highlights report that the end of month inflows and central bank
intervention will likely stabilise the prices throughout this week.
“We
expect the shilling to remain stable supported by end month inflows and dollar
supply from agricultural sector, tourism and mining that is enough to counter
demand from the oil and energy sector,” CRDB said.
International
Monetary Fund (IMF) said when replying the letter early this year that the
shilling depreciation was largely reflected the global strength of the dollar.
The
IMF also said domestic factors contributed to the volatility and such as the
loosening of monetary policy in late 2014.
“Staff’s
preliminary assessment is that the recent depreciation has brought the real
effective exchange rate, which was last assessed in 2014 to be somewhat
overvalued, closer to equilibrium,” IMF report showed.
SOURCE OF INFORMATION : FROM DAILY NEWS , BY DAILLY NEWS REPORTER, 03 JUNE, 2016.
