THE shilling is expected to remain steady briefly supported by inflows of the US dollars. Analysts said the local currency yesterday closed at levels of 2,185/2,195.
National Microfinance Bank said signs of weakening shilling started to be realized on Tuesday as importer demand from oil and manufacturing outweighing inflows from NGOs and institutions.
“More demand in the nearterm will likely put pressure on the shilling,” NMB said in an e-Market report. The shilling experienced high volatility and depreciation in the first half of 2015, but has stabilized since July towards the end of the last year.
The government said through a recently letter of intent that the situation was further compounded by delays in the mobilization of external program financing, which likely fuelled a foreign exchange shortage psychology.
The shilling depreciation against the dollar reached 25 per cent last year and the wedge between the exchange rates on the Interbank Foreign Exchange Market (IFEM) and the rates quoted by commercial banks and exchange bureaus widened considerably.
The IMF said when replying the letter early this month the depreciation largely reflected the global strength of the dollar, domestic factors also 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.
Last year, BoT took several steps to address the situation by further restricting the use of currency swaps between banks last February and reducing the ceiling on banks” forex net open position (NOP) to 5.5 per cent of core capital last April
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