Shilling hits 42-month low against the dollar

Dar es Salaam. The shilling has remained volatile against the dollar for a number of days due to strong demand for the greenback.

This is largely due to massive infrastructural development projects in Tanzania amid a slowdown in exports.

However, the Bank of Tanzania (BoT) has maintained that the local currency is still stable.

A survey of various bureaux de change in Dar es Salaam established yesterday that the dollar was sold at a maximum of Sh2,410 from Sh2,387 at the end of last week.

This is the lowest level to which the local currency has fallen in 42 months (three years and seven months).

The last time the shilling fell below Sh2,400 to the dollar was in June 2015.

But BoT’s foreign exchange summary showed yesterday that the dollar sold at Sh2,295, and the rate was almost flat for the whole of last week. The latest interbank foreign exchange market report shows that the dollar was traded at the highest rate of Sh2,307 for nearly two weeks.

In its monetary policy statement published last week, BoT maintained that the value of the shilling against the dollar remained broadly stable throughout the first half of 2018/19.

With the country undertaking massive infrastructural development projects, including construction of a standard gauge railway, roads and bridges, airports, ports and the Stiegler’s Gorge hydropower station, the import bill rose, while traditional exports dropped.

But in the wholesale market, the exchange rate fluctuated within the range of Sh2,276.4 to Sh2,291.8 against the dollar during the first half of 2018/19, compared to Sh2,241 to Sh2,250 in the corresponding period of 2017/18.

On an annual basis, BoT says, the shilling depreciated by 2.19 per cent from Sh2,242.21 to the dollar in the corresponding month in 2017. An economist at the University of Dar es Salaam, Prof Humphrey Moshi, attributed the shilling’s depreciation to an increase in imports of intermediate and capital goods at a time of major economic reforms.

“The ongoing construction of the standard gauge railway, roads and airports increases appetite for the dollar,” he said, adding that the construction of infrastructure will eventually lead to stability and stimulate growth.

Mr Sameer Milo, the managing director of Dar es Salaam-based FX Bureau de change, said there was high demand for the dollar, which automatically pushed up rates quoted for the greenback.

“Demand for the dollar is high, while inflows from exports and development partners are not that impressive,” he told The Citizen.

A forex shop operator who did not want to be identified said another contributing factor was the low number of tourists at this time of the year. Market players said the shilling might continue to depreciate if exports of goods and services continued to slow down while imports increased.

“If there will be no BoT intervention, and if cashew nuts will not have been exported in significant quantities by March, the shilling might drop to Sh2,500,” said a bureau de change operator.