TANZANIA: SHILLING CONTINUES TO STRENGTHEN AS DOLLAR DEMAND FALLS

THE Tanzanian shilling continued to strengthen against the dollar as inflows of the US currency increased and demand fell.

The shilling held steady since last week and started to firm against the greenback, halting its ten week fall that was caused by corporate demand of the dollar and fuel imports.

By 3:pm it traded at 1674/- to a dollar in most of bureau changes in the Dar es Salaam city centre, slightly changed from 1675/- to a dollar recorded in the morning.

According to Standard Chartered analysis, the local currency made some grounds against the dollar on the back of increased inflows and declining dollar demand in the market.

Reports from Nairobi had it that the Kenyan shilling trod water against the dollar yesterday and traders said importer demand for dollars would provide it with direction but within a tight range.

At 0700 GMT, leading banks posted the shilling at 87.65/75, unchanged from the previous day's close, amid subdued activities on the interbank market.

"We have seen a few enquiries here and there as we approach the end month and that should keep the dollar well-supported.

The ranges are between 87.50 and 87.80," said a senior currency trader with a commercial bank. "Still keeping it tight because any shilling appreciation is being snuffed out quite quickly so that has kept the market in a very tight range."

The shilling has been largely stable this year as steady economic fundamentals cushioned the currency from the fallout of frequent bomb and grenade attacks, blamed on Islamists, that have turned away tourists, an important source of income in Kenya.

Meanwhile, the Ugandan shilling gained ground yesterday as demand for dollars from the corporate sector eased. At 1051 GMT, commercial banks quoted the shilling at 2,635/2,645, stronger than last Friday's close of 2,655/2,665.

"The enormous appetite (for dollars) that we had from corporates last week has more or less petered out," said Ahmed Kalule, trader at Bank of Africa.

"So the shilling is benefiting from that but also liquidity is extremely tight... That's lending extra support." Kalule said the overnight funds rate rose to about 12 per cent from about 8 per cent on Thursday.

Last week the central bank soaked up hundreds of billions of shillings of excess liquidity via repurchase agreements (repos) and also sold dollars twice as it tried to ease pressure on the local currency exerted by demand for dollars from telecom firms.

The shilling has lost 4.4 per cent against the dollar this year. "I still expect the shilling to be vulnerable to a depreciation risk because as long as rates on Ugandan debt remain depressed," said a trader at a leading commercial bank.