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
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