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Stable shilling helps tame inflation

The local currency has been trading at a steady range of between 1573/- and 1,590/- for the last nine months, signifying that policies of about a year ago to tame the local currency’s free fall had paid-off. Last month, the shilling opened at around 1,574/- and closed slightly above 1,575/- to a dollar, which was the strongest trend since January, this year.

The Minister for Finance and Economic Affairs, Dr William Mgimwa told the ‘Daily News’ over the weekend that the firm stand of the shilling has cushioned prices for imported goods, hence lowering inflation.

“Exchange rate stabilisation has kept the price of imported goods at range bond to somehow lower inflation, Dr Mgimwa said. Inflation, which stood at 19.7 per cent in January was in August at only 14.7 per cent or five percentage points drop, which is not easy to register under normal circumstances.

He said, the exchange rate has enabled to hold steadily fuel pump prices from fluctuations, a trend that helped traders and citizens to have a stable and planned expenditure.

Though fuel prices are still on the higher side, at 2,300/- and 2142/- compared to 1,996 and 1,977/- per litre of petrol and diesel respectively in Dar es Salaam, were mainly pushed by the global market prices rater than the shilling fluctuation. “If it was not for the shilling’s strong stance, the prices of fuel would have been higher than what obtains at filling stations,” an analyst said.

Money market experts warned that despite the shilling continuing to hold firmly against the US dollar, the future prospects looked gloomy as month-end inflows, which supported the local currency, dried-up.

Traditionally, the shilling appreciated at the end of the month as corporate demand for the same surged to meet their month-end obligation including paying taxes. Standard Chartered Bank said the shilling appreciated a bit against the greenback over the weekend, as the market saw a slight increase in demand on the last day of the month.

“We have just started the month of October. We expect the shilling to lose ground against the dollar as the monthend inflows that supported the Shilling dry up,” the bank said in a daily market report. However, “volatility is expected to remain low,” it added.

Last September, the shilling exchanged hands at 1,825/- a dollar, the highest rate since the shilling was introduced in the market after the formation of BoT in June 1966. The shilling’s volatility was influenced heavily by the global financial crisis that hit the world between 2008 and 2010, which did not spare even international currencies.

But money analysts agreed that the local currency clung steadily against the foreign exchange market, but said the rate was still high to subdue prices of imported goods and services in society. The weaker the shilling, according to money markets, the higher the prices of imported goods, therefore the rate should be at least below 1,200/-.

But BoT has maintained that a balance should be kept between reasonable exchange rate that would facilitate imports as well as exports

 

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Author: ABDUEL ELINAZA

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