East African Business Week

DAR ES SALAAM, TANZANIA - The country's central bank, Bank of Tanzania (BoT) has directed commercial banks to sell foreign currency to oil importers under specified margin rates to avoid hurting their balance sheet.
BoT Governor, Prof Benno Ndulu, said, without giving specifics of the margin rate, the dealing normally conducted at foreign exchange money market, but requirement for oil importers will deal at special rates.
 "It is not true that we are selling US dollars directly to the oil importers, we have only given them a margin. That is all," Prof Ndulu said when clarifying on whether the Central Bank was bypassing the foreign exchange market.   
The Governor the notion of bypassing the normal routine was misconstrued because of the special rates to oil importers.
He stressed that the BoT doesn't want banks to do arbitraging on oil importers because the sector buys large amounts of dollars which affects the movement of the Tanzania shilling.
In its report last the The Standard Chartered Bank noted that Tanzania shilling had continues to stabilize thanks to the fact that the majority of oil sector are being serviced by the Central Bank.
 "Thanks to the fact that much of oil sector demand is being serviced by the Bank of Tanzania. This status quo is expected to hold for the remainder of the month (November 2011)," the Standard Chartered Bank report said.
The media also speculated a similar scenario where by the BoT has taken that measure to hold back the rapid depreciation of Tanzania's currency against stronger currencies.
At the close of last week, the shilling was seen appreciating to Tshs 1,700/- a US dollar attributed to the absence of oil importers at the interbank foreign market (IFEM).
 "It has become apparent that without the high oil sector demands on the IFEM, the rest of the demand matches very well with supply," Standard Chartered noted in its daily market report.
 Though the shilling has done well during the last week, the inflation in October shot up to 17.9% from 16.8 % in September 2011, on the back of higher food and fuel prices.
 Economists urged the Government had to tighten its fiscal policy.
As a result of the BoT measures, it is showing signs of appreciating of the Tanzania shilling against US dollar and other stronger currencies, but increase the cost of borrowing and thereby affecting equity market as investors are buying government securities, which have high yields.