Tanzania shilling hits new record low

DAR ES SALAAM: The Tanzanian shilling hit another record low against the dollar on Monday and traders expected it to remain under pressure this week as importers secure dollars after the central bank said on Friday it would not step in to support the currency.

Commercial banks quoted the shilling at a fresh all-time low of 1,710/1,721 from a previous record low of 1706.0 on Friday.

"The governor made it worse on Friday when he said he would let market forces determine the value of the shilling and it sank to a new (record low)," said Gladness Deogratias, a dealer at African Banking Corporation.

"We are now trading at another new (low) of 1,720 today. With no intervention from the central bank, we are seeing a bit of a panic from importers who are now looking to cover their forward positions up to December."

Central bank Governor Benno Ndulu was quoted by The Citizen newspaper on Friday as saying that moving to stabilise the shilling would hurt the country's economic competitiveness.

The Tanzanian shilling has lost 15.3 percent against the dollar in the year to date, hit by high inflation, surging demand for dollars from oil importers to cover higher oil prices and global risk aversion as the euro zone debt crisis escalated. Unlike neighbouring Kenya, Tanzania's central bank has been reluctant to support its currency, saying a weak shilling was good for exports and it did not want to deplete its foreign exchange reserves.

Some analysts however say it needs to take a more aggressive approach to prevent the currency from sliding further and aggravating inflation, already at 14 percent.

Traders said they expect the shilling to trade in the 1,710-1,720 range in the coming days.

"There is demand for dollars mainly from oil and trading companies. If the interbank demand is factored in, the shilling could be in serious trouble," said Justin Kimeshemo, a trader at National Bank of Commerce, a unit of South Africa's ABSA group.

In the past week Tanzania's central bank traded $58.57 million on the interbank foreign exchange market, it said on its website.