The Bank of Tanzania (BoT) has intervened to stabilize the Shilling, which has been the second worst-performing currency on the continent this month.
BoT has sold USD this week to strengthen and support the Shilling which suffered five days of losses last week.
“Our foreign exchange policy is built on the foundation that the Shilling is market determined,” says Director of Economic Research and Policy at the BoT Dr. Joseph Masawe.
“The bank intervenes in the foreign exchange market for liquidity management purpose, to build foreign exchange reserves and smooth out short term volatility in the exchange which are inconsistent with economic fundamentals,” says Masawe, noting that such interventions are normal practice to manage liquidity in the economy.
A decrease in dollar demand by the energy sector removed some pressure faced by the Shilling, a trader at the National Bank of Commerce was quoted as saying.
However the end of cashew nut season, tourism low season and donors freezing development money due to the corruption scandal all put the Shilling in a bit of a precarious position.
The Shilling is also a victim of declining commodity prices on the world market, Director of Economic Research and Policy at the BoT Dr. Joseph Masawe, told the government owned Daily News on Tuesday.
“As the US economy strengthens all other currencies lose ground against the dollar,” says Masawe.
The World Bank predicts Tanzania’s economy — the second largest in East Africa — will expand 7.1 percent this fiscal year (through June) and puts extra pressure on the Shilling, which has dropped 5.8 percent this year, as demand for USD increases.
At this time last year, the exchange rate was 1,624.94 Shillings.