What the central bank’s new forex directives mean
What you need to know:
- The directives, which became effective yesterday, invalidated the ones issued in August 2020
Dar es Salaam. The Bank of Tanzania (BoT) has issued new directives on foreign exchange operations as part of its efforts to maintain a healthy liquidity of money from other countries in the economy and contain existing global pressures precipitated by high global commodity prices.
BoT governor Emmanuel Tutuba said in a statement issued on May 31 that in executing its statutory mandate, the central bank has reviewed the foreign exchange market operations in consideration of the current market development.
The directives, which became effective yesterday, invalidated the ones issued in August 2020.
According to the directives, all foreign exchange transactions exceeding $1 million in the retail market shall at all times be traded within the interbank foreign exchange market prevailing quoted prices.
This is contrary to the August, 2020 directive which said all foreign exchange transactions above $250,000 per transaction in the retail market must, at all times, be traded within the interbank foreign exchange market prevailing quoted prices.
Analysts say by increasing the limit to $1 million for retail transactions to be traded within the interbank foreign exchange market prevailing quoted prices was a positive move to the Tanzanian currency as dealers will not be allowed to quote their customers’ prices that were too far from those for the interbank market.
“This will be positive because previously the limit was at $250,000 and therefore dealers could quote higher prices from those in the interbank market for any amount exceeding the $250,000 limit,” said an independent financial market expert Christopher Makombe.
He said the interbank was a wholesale market where banks trade among each other and therefore the BoT’s directives basically mean that retail clients will now also buy or sell dollars at prices that are traded within the interbank market thereby avoiding excessive profit margin taking by dealers which may lead to rapid depreciation of the local unit.
On his part, University of Dar es Salaam, Head of Finance Department, Tobias Swai said the decision by BoT aims to increase foreign reserves for local market and not capital flight.
The BoT says in its Monthly Economic Review for May that the Shilling was largely stable against currencies of major trading partners, consistent with low inflation rate and adequate reserves in April, this year.
It was trading at an average rate of Sh2,324.07 per US Dollar, compared with Sh2,322.16 per US Dollar in March, 2023.
“On annual basis, the Shilling depreciated by 0.5 percent from Sh2,310.14 per US Dollar in April 2022,” the BoT says.
The BoT says Tanzania’s stock of foreign exchange reserves declined by $580.2 million at the end of April, 2023.
The stocks stood at $4.881 billion at the end of April 2023, from $5.461 billion at the end of April, 2022.
