THE shilling is expected to hold steady against the US dollars in the second quarter of the year on increased inflows green bucks from tourism and agriculture and demand from corporates to meet 2018 dividend obligations.
The NMB Market Digest said in its report that the second quarter will witness increase of inflows from tourism and agriculture thus bolstering the local unit.
“W ith traditional inflows mostly from tourism and agriculture expected to increase by June, the local unit is to hold steady with minimal volatility as the central bank continues its liquidity management efforts to preserve calm market conditions,” stated the report.
According to the report, the local currency ended the quarter strongly after trading weaker during the first two months of the year to appreciate by 2.1 per cent.
The quarter opened at 2,300/- per dollar, traded to a high of 2,365/- before firming to close lower at 2,315/-.
The local currency was buoyed by end of quarter tax obligations from exporters, mining firms and other large corporates as they converted their foreign denominated holdings mostly US dollars to obtain the local unit, with usual importers demand sidelined by the same coupled with the central banks prudent liquidity management policies.
The Interbank Foreign Exchange Market volume was 144.42 million US dollars in the first quarter of year 2019, compared to 185.45 million US dollars in the preceding quarter on the back of deficiency price discovery and abridged liquidity in the interbank market.
The Bank of Tanzania (BoT) participated as a net seller for liquidity management purposes and in order to maintain orderly money market conditions.
The overnight interbank cash market volumes in the quarter under review fell by 3.4 per cent in comparison to the previous quarter. Total volume traded amounted to 1.96tri/- in Q 1 2019 lower than 2.03tri/- traded in Q 4 2018.
In general terms, the market was liquid albeit being skewed towards a few large interbank players leaving other players with shortage of funding.
Despite the fall of overnight cash market volumes on quarter to quarter, there was a huge increase in volume traded compared to same quarter in 2018 where 1.25tri/-of traded volume was recorded.
The shortage of funding by some banks as liquidity was skewed towards a few banks pushed interest rates on the overnight market to, an average of 4.47 per cent in Q 1 2019 from 2.52 per cent in Q 4 2018.
This is also higher than 2 per cent that was seen in the same quarter of 2018.
“Going into the second quarter, we expect an upward pressure on the demand for shilling liquidity in the interbank cash market to continue as government financial year comes to an end and most liquidity returned to BoT,” stated the report.