TANZANIA: THE foreign exchange market experienced a notable increase in demand, particularly for the US dollar in the first quarter of this year due to low seasonal inflows from tourism and export crops, says the Bank of Tanzania’s Monetary Policy Committee (MPC) in its latest report.
Owing to the shortage of US dollar liquidity, the exchange rate depreciated by 9.4 per cent, year-on-year compared with 7.8 per cent in the preceding quarter.
This was attributable to low seasonal inflows from tourism and export crops, which coincided with the impact of monetary policy tightening in advanced economies and growing domestic demand for capital and intermediate goods following improving business conditions.
“Demand for foreign exchange, particularly the US dollar, tends to be high during January-March due to seasonal low inflows from tourism and export crops,” the MPC report stated.
This year, according to the MPC, the seasonal influence coincided with the impact of monetary policy tightening in advanced economies, which has caused a shortage of US dollars in the market.
The Bank sold 75.1 million US dollars in the interbank foreign exchange market (IFEM) to support the market.
The foreign exchange reserves remained adequate at 5.3 billion US dollars at the end of March this year sufficient to cover 4.4 months of projected imports consistent with the minimum requirement of at least 4 months.
The US dollar liquidity is expected to improve as the global economy continues to normalise and foreign exchange inflows from exports increase.
Meanwhile, the real effective exchange rate exceeded its long-term trend. However, the misalignment was still minor (less than 2 per cent) to warrant policy intervention.
In the medium term, the current account is expected to improve due to the ongoing measures to boost exports and import substitution.
The MPC also decided that given the ongoing challenging global condition, the Bank may intervene in the foreign exchange market, as stipulated in the Foreign Exchange Intervention Policy.
Furthermore, the Bank will continue aligning monetary conditions and forex reserves for attaining the targets of net domestic assets and net international reserves for the quarter ending June this year as set forth under the Extended Credit Facility (ECF) Programme.
The auction of government securities for fiscal operations will follow the government issuance plan.
The economic performance in advanced and emerging markets improved in the first quarter of this year.
The output growth was higher than in the preceding quarter, inflation continued to decline and monetary and financial conditions moderated.
The price of crude oil was stable, averaging 80 US dollars per barrel. The price of gold remained high at around 2,071 US dollars per troy ounce.
The MPC expects these economic conditions to prevail in the subsequent period of this year with the outlook conditioned on the OPEC+ stance on oil production and effects of the geopolitical tensions on the supply chain and commodity prices.
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