Shilling in 11-month volatility

What you need to know:

  • Interbank Foreign Exchange Market (IFEM) summaries by the BoT show that the shilling depreciated by an average of 2.16 per cent for eleven months from January to November 30

Dar es Salaam. The shilling remained volatile against the US dollar in the first eleven months of this year, hitting an all-time low for the first time in November 15, 19 and 26, when it exchanged at Sh2,305 to the dollar.

It continued the downward slide on November 19 when it exchanged at Sh2,325 per US dollar in some of the city’s bureaux de change.

At the same time Interbank Foreign Exchange Market (IFEM) summaries by the Bank of Tanzania showed that the shilling depreciated by an average of 2.16 per cent for eleven months from January to November 30, 2018.

According to the BoT, the shilling traded at Sh2,241.66 per one dollar on January 2, and depreciated to Sh2,290.17 on November 30, this year. However, bureaux data showed the shilling depreciated up to Sh2,310 per dollar on that day. The rate in January 2 was the highest the shilling has traded since then.

“The current depreciation is normal, and has been partly caused by seasonal factors and a general strengthening of the US dollar across most currencies in the past few days,” BoT Marketing and Finance director Alexander Mwinamila told The Citizen.

Some stakeholders have expressed belief that the shilling’s fall to the lowest rate against the dollar means a shortfall in the supply side of the greenback in the economy, relative to demand at the same time. Prof Honest Ngowi of Mzumbe University said: “Foreign currencies are supplied in an open economy through export of goods and services.”

Their strength depends on factors such as incoming tourists, remittances, selling of domestic assets in foreign currencies, inflow of aid money and returns of a country’s investments abroad in the form of profits among others, he added.

“The declining shilling indicates that some of these variables have not been in adequate good shape in Tanzania,” he said, adding that the shilling’s decline could also be attributed to increased demand of the greenback as a function of import of goods and services.

Tanzania imports a long string of goods and services including those that could basically be procured domestically. This leads to high demand for the USD to settle such transactions.

No wonder then that the price of the dollar goes up when demand is high amidst dwindling supply of the same. Supporting the facts on Monetary Economic Review (MER) for October by the BoT, he noted that: “The country’s current account deficit is largely accounted for by increased imports, particularly transport equipment as well as building and construction,” noted the report.

The report explained that there was an increase in importation of capital goods, which was explained by the county’s ongoing construction of huge infrastructures such as the Standard Gauge Railway (SGR).

A bureau de change operator, Mr Sameer Milo, the managing director of the Dar es Salaam-based FX Bureau de Change said high exchange rate by bureaux depended on supply and demand of currencies, saying they charged according to the market situation.

The BoT director of Economic Research and Policy, Mr Johnson Nyella, said the US economy was currently strengthening, thus affecting the stability of many currencies in the world.

However, for the purpose of managing liquidity and maintaining an orderly money market, the BoT participated in the IFEM each month, an example being in September when it sold $20.5 million and $0.95 million in the preceding month.

On the other hand, the central bank’s IFEM has shown that in the first eleven months of 2018, the shilling was traded at an average of Sh2,273.91 per dollar, which was higher compared with Sh2,240.41 and Sh2,188.83 in the same period in 2017 and 2016 respectively.

IFEM summaries have further revealed that the amount traded between January and November declined by 31.67 per cent in 2018 to $1,2667.07 million compared with $1,854.47 million on the same period in 2017.

This means that the average value of transactions per day have decline from $8.24 million on 2017 to $5.49 million in 2018.

The value of the Tanzanian shilling gained ground against the euro and the British pound in the first eleven months of this year.

The local currency increased in value by an average of 3.16 per cent against the European Union currency and by 3.60 per cent against the sterling pound.

BoT reports state that the shilling’s selling rate on November 30, was Sh2,606.60 for one euro, an appreciation from Sh2,689.04 on January 2, 2018, while the local currency appreciated against the sterling pound, selling at Sh2,924.47 from Sh3,029.7 during the same period.

Mr Nyella, attributes the strengthening of the national currency to market forces.

Currencies gain or lose strength from day-to-day due to market forces “which you can’t predict,” The BoT director of Economic Research and Policy, Mr. Johnson Nyella said, adding that one of the central bank’s functions is to ensure stability of the local currency.