The Tanzanian shilling is expected to hold steady against the United States dollar in the second quarter of 2019 due to increased inflows of the greenback from tourism, agriculture exports and demand from corporate to meet the 2018 dividend obligations.
The National Microfinance Bank (NMB) Market Digest said in its report that the second quarter will witness increase of inflows from tourism and agriculture thus bolstering the local unit.
The report stated that with traditional inflows mostly from tourism and agriculture expected to increase by June, the local unit is to hold steady with minimal volatility as the central bank continues its liquidity management efforts to preserve calm market conditions.
Further, according to the report, the local currency ended the quarter strongly after trading weaker during the first two months of the year to appreciate by 2.1 per cent. The quarter opened at Tshs.2,300 per dollar, traded to a high of Tshs.2,365 before firming to close lower at Tshs.2,315.
The local currency was buoyed by end of quarter tax obligations from exporters, mining firms and other large corporate as they converted their foreign denominated holdings mostly United States dollars to obtain the local unit, with usual importers demand sidelined by the same coupled with the central banks prudent liquidity management policies.
The Interbank Foreign Exchange Market (IFEM) volume was Tshs.332.1 billion ($144.42 million) in the first quarter of 2019, compared to Tshs.426.5 billion ($185.45 million)in the preceding quarter on the back of deficiency price discovery and abridged quality in the interbank market.
The Bank of Tanzania (BoT) participated as a net seller for liquidity management purposes and in order to maintain orderly money market conditions.
The overnight interbank cash market volumes in the quarter under review fell by 3.4 per cent in comparison to the previous quarter. Total volume traded amounted to Tshs.1.96 trillion ($852.1 million) in the first quarter of 2019 lower than Tshs.2.03 trillion ($882.6) traded in the fourth quarter of 2018.
In general terms, the market was liquid albeit being skewed towards a few large interbank players leaving other players with a shortage of funding.
Despite the fall of overnight cash market volumes on quarter to quarter, there was a huge increase in volume traded compared to same quarter in 2018 where Tshs.1.25 trillion ($543.4million) of traded volume was recorded.
The shortage of funding by some banks as liquidity was skewed towards a few banks pushed the interest rates on the overnight market to an average of 4.47 per cent in Q1 of 2019 from 2.52 per cent in Q4 of 2018. This is also higher than the 2 per cent that was seen in the same quarter of 2018.
The report finally expressed its optimism in an upward pressure on the demand for shilling liquidity in the interbank cash market to continue as government financial year comes to an end and most liquidity returned to the Bank of Tanzania.