Shilling depreciates by 5pc in six months
TANZANIA: THE Tanzanian shilling has depreciated by 5.0 per cent over the past six months up to July, as it faces heightened demand for US dollars driven by tightening monetary policies in advanced economies and rising global commodity prices.
According to the Bank of Tanzania (BoT)’s Indicative Exchange Rate report, the exchange rate stood at 2,652/40 shillings per US dollar as of yesterday, compared to 2,526/60 at the end of January.
The Monetary Policy Committee (MPC) of the BoT noted in its latest report that while the foreign exchange market continues to experience liquidity shortages, there was some improvement towards the end of June due to increased inflows from tourism, gold, and cash crops.
In the Interbank Foreign Exchange Market (IFEM), exchange rate quotes showed slower movements with narrower spreads compared to the previous quarter.
The shilling depreciated by approximately 2.2 per cent quarter-on-quarter in June, slightly faster than the 1.8 per cent depreciation seen in the first quarter of this year.
“In the retail market, the exchange rate depreciated by around 3.2 per cent quarteron-quarter, which was faster than the 1.9 per cent depreciation in the first quarter,” the report stated.
Market turnover in the IFEM was $87.5 million as of the last Tuesday of last month, down from 129.8 million US dollars recorded in the first quarter of this year and 208.6 US dollars million in the same quarter last year.
The central bank anticipates further improvement in foreign currency liquidity through ongoing policy interventions, including measures to reduce domestic transactions denominated in foreign currency, alongside improvements in the current account.
Economist and investment banker Dr. Hildebrand Shayo recently highlighted that over the past decade, the shilling has depreciated on average by 6.3 per cent annually.
He cited historical rates such as 1,634/99 shillings per US dollar in April 2014, climbing to 2,542/68 in April 2024.
The Monetary Policy Statement (MPS) issued in June attributed shilling pressure to high foreign exchange demand amid tightening monetary policies in advanced economies and elevated global commodity prices.
“To address this pressure, the central bank implemented various measures, including tightening monetary policy, increased engagement in the IFEM, and urging stakeholders to prudently utilize foreign exchange during challenging periods,” the MPS report indicated.
In April this year, the MPS reported a nominal exchange rate depreciation of 11.2 per cent year-on-year, contrasting with less than 1 per cent depreciation in the preceding two years.
