The Tanzanian 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.
