| Weak shilling keeps govt on its toes | Send to a friend |
| Tuesday, 31 January 2012 22:26 |
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The Citizen Reporter Dar es Salaam. The general outlook of the first half of the current fiscal year has not looked very healthy because of a number of issues. The period running from July to December 2011 saw the economy rocking because of shilling depreciation, which in turn sparked high commodity prices, particularly of foodstuffs. On the other hand, the government has been taking deliberate measures to try and counter the general trend, particularly aimed at easing inflation and save the fluctuating shilling. From single digit of 5.6 per cent in December 2010, the inflation rate reached 13 per cent in July, 2011 and hit the record high of 19.8 per cent in December last year. According to the ministry of Finance and Economic Affairs, the increase in inflation rates was partly caused by the persistent increase in fuel prices at the world market. “The fuel prices went up by an average of $104 per barrel as the year ended November 2011 compared to the average of $76 per barrel in the same period int the previous year,” reads part of the Macroeconomic Indicators report. It adds that other factors towards high inflation were at play: insufficient rainfall, increased electricity prices, frequent power outages, and high demand for food because of the famine and hunger that dominated the Horn of Africa. The report also says, among measures the government took to try and put things under control included allocation of Sh220 billion for the emergence power plan, which saw additional of 342MW to seal the 572MW power gap in the national grid; ensuring there was enough food reserve, which stood at 192,779 tonnes in 2011, up by 28.5 per cent of the target of 150,000; and it ensured that food imports were tax exempted. The central bank also introduced fiscal policy measures such as reducing core capital of foreign exchange dealers from 20 per cent to 10 per cent so as to release more forex into the market to strengthen the shilling. Governor Benno Ndulu also announced raising central bank rate by 200 basis points to 9.58 per cent, being the rate at which commercial banks can borrow from the BoT, as well as mopping up excess money from the circulation to lower inflation and strengthen the shilling.“The central bank also increased cash reserve requirement on government deposits from 20 per cent to 30 per cent,” reads the report in part. The move, which started in November last year, targets commercial banks that hold huge government deposits to use it to lend to the government through treasury securities. The shilling was exchanging at Sh1,765 for a US dollar in October last year, but it affirmed to Sh1,587 per dollar end of December due to the BoT measures. The bank has since introduced measures to ease liquidity of the greenback caused by speculative demand.Last week the exchange rate averaged Sh1,602.188 per the US dollar. Add this page to your favorite Social Bookmarking websites           |
