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Tanzanian shilling seen firming up against the dollar

7th April 2012
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Dollar

The Tanzanian shilling is seen firming against the dollar next week, helped by tighter liquidity and dollar inflows from firms selling foreign currency to pay taxes.

Commercial banks quoted the shilling at 1,578/1,583 to the dollar on Thursday, stronger than 1,591/1,596 a week ago.

"The short-term outlook is for a stable shilling. Most of our corporate customers have been offloading dollars to pay shilling-denominated withholding tax," said Barton Hamisi, a trader at National Bank of Commerce.

"We expect the shilling to be even more stable next week as we head towards mid month."

Traders said the local currency could trade in the 1,570-1,580 range in the days ahead.

The Bank of Tanzania said on its website it traded $48.45 million on the interbank forex market in the last week.

The Ghanaian cedi on the other hand is set to remain steady next week, after falling to new lows versus the dollar, but may weaken without robust central bank intervention. In Uganda, increased dollar demand from importers is seen pressurising the shilling.

Ghana's cedi, at fresh lows versus the dollar, is seen holding at the same levels next week on greenback inflows from the central bank and other sellers, traders said.

The dollar-cedi rate was relatively stable on Thursday at 1.7850 at 1300 GMT from the previous day's close of 1.7865.
Kobla Nyaletey, chief trader at Barclays Bank Ghana, said trade was set to remain thin next week due to the Easter break.

"But there is still some demand pressure (for the dollar) out there and this could put some pressure on the market, unless the central bank intervenes robustly as it has done in the past," Nyaletey said.

"In this context, we could see the (dollar-cedi) rate in the 1.780-1.79 bandwidth," he said, adding that the pair could hit the 1.79 barrier in the absence of inflows from the central bank and other sellers.Overall the cedi fell 7.16 percent in Q1 2012.

The central bank's monetary policy committee is due to meet next week to review the economy and announce a rates decision.

Nyaletey said he expected the committee to maintain the policy rate at 13.5 percent despite the cedi's recent decline.
Access Bank Ghana trader Biggles Amponsah said the dollar-cedi rate could ease to 1.7750 next week on dollar sales by mining and some construction firms.

In Kenya, the shilling is likely to get support from high interest rates after the central bank kept its benchmark rate at 18 percent on Wednesday, saying inflation and private sector credit growth were still above target, while a wide current account deficit and global oil prices remained a threat to currency stability.

Commercial banks posted the shilling, which has firmed 2.1 percent against the dollar this year on the back of the central bank's tightening stance, at 83.05/25 per dollar at 0906 GMT, barely changed from last Thursday's close of 83.00/15.

During Thursday's session, the central bank mopped up 9.6 billion shillings at a weighted average rate of 15.8 percent through repurchase agreements after the government unleashed a flood of liquidity, pushing the interbank rate down to 12.7 percent on Wednesday, from 18.8 percent on Tuesday.

Traders said they saw the shilling trading within the 82.50-83.50 range in the days ahead.

High yields on government securities would support the currency as real returns on the papers remained positive after inflation edged down to 15.6 percent in March from 16.7 percent in February, traders said.

The shilling fell to an all-time low of 107 shillings per dollar last October, but it managed to pull up from those depths, aided by the tight monetary stance adopted by the central bank in the fourth quarter of 2011.

Traders said the decision by the central bank to hold its rate at 18 percent showed it was keen on maintaining yields in positive territory.

And in Uganda, the shilling may be pressured next week by increased dollar demand by importers after the Easter break.

Traders said the shilling, which has strengthened 1.4 percent this week on the back of reduced demand and banks selling dollars after the Bank of Uganda held its benchmark rate at 21 percent, could suffer from pent-up demand for dollars after Easter.

At 1144 GMT, commercial banks posted the shilling at 2,480/2,490 per dollar, stronger than last Thursday's close of 2,510/2,520.

"The shilling has shown signs of strength this week, but we expect demand to pile up after Easter as importers come back in the market," said David Bagambe, a trader at Diamond Trust Bank.

Traders expected the shilling, which hit a 2012 low of 2,620 on March 6 after the central bank's second rate cut, to weaken towards the 2,500 level next week.

They said the central bank could maintain a tightening stance going forward as inflation in east Africa's third largest economy was still high at 21.2 percent in March.

Nigeria’s naira is expected to hold steady or slightly against the U.S. dollar next week as the market anticipates dollar sales by the state-owned energy firm NNPC and local units of multinational oil companies.

The local currency was flat at 157.65 to the dollar at 1048 GMT on Thursday, due mainly to thin trading.

"We are still expecting the dollar sale by the NNPC, but they have not said when it will come, so the market is trading within a range," one dealer said.

The naira has been trading within the 157.50-157.90 range in the last two weeks.
Dealers said more than $200 million was sold by some energy firms this week alone, which had helped stabilise the naira.

SOURCE: THE GUARDIAN
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