Bloomberg News

Tanzania Central Bank Expects Shilling Support Steps to Work

October 31, 2011

(Updates with comment from deputy governor in second paragraph.)

Oct. 31 (Bloomberg) -- The Tanzanian central bank’s steps to stem the drop in the shilling’s exchange rate, which is at the weakest in 17 years against the dollar, are likely to succeed, Deputy Governor Lila Mkila said.

“We are confident that these measures will have a positive impact on the shilling,” Mkila told reporters today in Dar es Salaam, the commercial capital. “I can’t give an exact rate, but the measures will definitely help.”

Last week, the central bank of East Africa’s second-biggest economy stopped commercial banks lending local currency to non- resident borrowers, Mkila said. It increased the repurchase rate to 9.58 percent from 7.58 percent, raised minimum reserves to 30 percent from 20 percent, and reduced the net-open position limit to 10 percent from 20 percent.

The shilling has lost 16 percent this year as the inflation rate of East Africa’s second-biggest economy climbed to 16.8 percent in September on higher energy and food costs.

“Infrastructure financing is among the main factors that has caused the shilling to depreciate, because dollars are needed to finance the projects,” Mkila said. “Inflationary pressures in countries where we import from like petroleum, has also caused the shilling to depreciate, and increased our inflation rate.”

The cost of Tanzania’s oil imports surged 65 percent in the three months through June compared with the previous quarter, and comprised 34 percent of total imports, according to central bank data. Surging food and fuel prices have pushed up inflation in the region, which is suffering from the worst drought in six decades.

“We are still working within in a framework that we expect will bring down inflation to 5 percent by June,” he said. “There is a lot of food in the south, and a bit of scarcity in the north, so improved distribution of food will help reduce inflation.”

--Editors: Ana Monteiro, Karl Maier

To contact the reporter on this story: David Malingha Doya in Dar es Salaam via Nairobi at pmrichardson@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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