Tight liquidity stance impresses BoT

Tight liquidity stance impresses BoT

BoT Director of Policy and Research, Dr Joe Massawe said in Dar es Salaam over weekend that the bank’s fundamental measures have helped the shilling to gain ground against the world major currencies.

The BoT tight liquidity measures saw the shilling appreciating to a two-month high to below 1,600/- against the US dollar from the lowest point of 1,850/- two months ago when the local currency appeared to tumble out of control.

The weakening shilling pushed up prices that have made it difficult for families with fixed, low incomes to afford basic necessities. He said the measures will continue to be observed until the flying inflation come down to single digit. However, Dr Massawe observed that such efforts by the bank would only be successful if fiscal measures are implemented in the same manner.

According to the National Bureau of Statistics (NBS), the annual headline inflation rose to 19.2 per cent from 17.9 per cent of the preceding month. The rise is mainly attributed to rise of food prices. Some of the BoT tools included hiking interest rates, reducing government deposits in commercial banks, as well as cutting the capital adequacy of forex dealers.

The bank’s interventions on falling shilling came amid accusations that some financial institutions were involved in speculation and illegal trading practices which significantly led to the weakening of the local currency. Some banks have been hoarding foreign currencies to create artificial shortages in order to reap maximum benefits.

The banks have also been accused of lending foreign currencies to non-resident entities, leading to shortages and further weakening of the shilling. Commenting on the hiked power tariffs, Dr Massawe said the move was good and would have positive results in the long run.

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