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Low demand in interbank market keeps shilling firm

Low demand in interbank market keeps shilling firm

The shilling traded at 1590/18 against the greenback on Thursday as compared to 1595/13 on Monday, according to data from the Bank of Tanzania (BoT).

“As long as the central bank remains in the market selling dollars, we expect the current low rates to continue in the short term,” Standard Chartered Bank said in its daily market report, “Low to moderate level of volatility should be expected on Friday.” The shilling has since January gained strength, trading below 1,610/- at commercial banks.

The exchange rate is the key component on pegging the price of imported goods and services. The central bank, in line with inflation developments last October, sold 104 million US dollars compared to 94 million US dollars of the preceding month. “This resulted to a mop up of 188.1bn/- from the economy”.

The central bank says in its monthly economic review of last November. In October, the Bank accounted for almost 72
per cent of the total sales in the Interbank Foreign Exchange Market (IFEM). Meanwhile, the interbank borrowing rates have dropped to the lowest level since the beginning of this year, thanks to the fall of the repurchase agreement (Repo) rate.

The interbank rates dropped from 7.04 per cent of previous week to trade between three and five per cent of on Thursday. “Repo rates have continued to fall to around five per cent for 14-day repo rates, a factor that has continued to push down the inter bank borrowing rates,” Tanzania Securities CEO Moremi Marwa said in the weekly commentary issued by his firm.

Repo or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date, but at a higher repurchasing rate.

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