Shilling gains strength on strong reserves

DAR ES SALAAM: SHILLING has firmed nearly 8.0 per cent against the US dollar year-to-date, buoyed by foreign reserves now topping 6.0 billion US dollars, offering five months’ worth of import cover.

The currency’s appreciation trend reflects growing macroeconomic stability and improved investor confidence in Tanzania’s external position.

An economics and finance analyst Mr Kelvin Msangi cautioned that a sustained 8.0 per cent appreciation of the shilling could pose risks to the export sector, with Bank of Tanzania estimates suggesting it may reduce the sector’s contribution to GDP by up to 0.4 percentage points.

“Yet the real story lies in the arithmetic of stability. The shilling’s strength reduces import costs but trims export competitiveness for gold, cashew and manufactured goods,” he said.

To counterbalance, he said the bank is expected to rely on liquidity fine-tuning and limited FX interventions rather than outright rate adjustments. By insulating the real sector from monetary whiplash, Tanzania preserves policy room in an environment where global financial conditions are tightening.

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Mr Msangi noted that the Bank of Tanzania’s steady policy stance aligns closely with the economic narrative promoted by the ruling CCM party ahead of the October general election.

In effect, monetary policy has become a subtle extension of political signalling a reassurance that Tanzania’s stability story is not merely cyclical but institutionalised.

For investors, this convergence of policy and politics suggests that the post-election environment is likely to preserve the current macroeconomic framework rather than overhaul it.

However, he cautioned that despite the recent stability, risks remain as rising global commodity prices could reignite inflation, climate shocks may disrupt food supply chains and external volatility could still test the shilling’s resilience.

BoT’s forward guidance emphasises data dependence, offering flexibility to act without eroding credibility.

The country’s resilience will hinge on sustaining credit quality, managing external shocks and preserving fiscal discipline.

Alpha Capital Head of Business Development and Customer Service Mr Geofrey Kamugisha said the Tanzanian shilling strengthened notably, appreciating to 2,490/16 per US dollars from 2,666/79 in the previous month, aided by seasonal foreign exchange inflows from cash crops, tourism and gold exports, as well as easing global fuel costs.

This interplay of forces, ample liquidity, declining yields and a firm currency suggests that the country’s financial system remains comfortably liquid.

However, the composition of that liquidity is key as much of it is seasonal and driven by export receipts and tourism inflows. As these taper toward the end of the year, pressure on yields may ease, and the pace of decline could moderate as the market transitions into early 2026.