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The East African : Sep 22nd 2014
MONEY AND EQUITY MARKETS SEPTEMBER 20-26,2014 FOREIGN EXCHANGE EA currencies fall against dollar Cent≥al banks go to the money ma≥ket to cushion economies against shocks By ALLAN OLINGO The East African ling’s dismal performance against the US dollar amid increasing anxiety that rising inflation and weakening currencies in the East African Community (EAC) signal hard times for businesses and consumers. The Central Bank of Kenya K (CBK) said it had foreign exchange reserves of $7.4 billion, enough to sustain 4.85 months of regular imports, which it deemed adequate to cushion the economy against temporary shocks. This was $1.1 billion, or 4.13 months of imports, above the $6.3 billion at the end of last month. CBK attributed the build-up to sale of sovereign bond proceeds by the government. “The current level of import cov- er is the largest that CBK has ever attained,” the central bank said. “It is therefore clear that inflows into the foreign exchange market have continued giving the Central Bank and the economy a cushion to weather any shocks.” Analysts have blamed the weak- ening of the shilling to prevailing demand for dollars by importers against low-performing tea and tourism sectors, which has reduced dollar inflows. In the past two weeks, the shilling has depreciated to a two-and-a-half-year low of Ksh88 to the dollar, having lost 2.5 per cent this year. Jared Osoro, director of Re- search and Policy at the Kenya Bankers Association, said the statement reflected CBK’s readiness to make market interventions in the event of volatility in the forex market. “Arising principally from the sovereign borrowing and not necessarily through either export earnings or portfolio flows, that can only mean that the cushioning of the local currency from the for- $38.25m enya’s central bank has moved to allay fears over the shil- 57 Quality of living declines despite economic g≥owth By ADAM IHUCHA Special Correspondent TANZANIA’S ECONOMY may have posted robust growth in the first quarter but this has not translated into fuller pockets for the majority poor. Whereas the National Bureau of Statistics Bureau (NBS), in a quarterly report released last week, said the economy grew by 7.4 per cent in the first quarter of 2014 compared with 7.1 per cent over the same period last year, for the majority of Tanzanians that is a mere number. For many years, Enock Mwazile has eked out a living selling bicycle spare parts and vehicle engine lubricants in Igunga district of Tabora region, western Tanzania. To him, the economic growth should have at least reduced the cost of living. But the opposite is true as spiraling prices of goods have made his daily battle for survival ever harder. “A year ago I could pay for all the basic necessities with Tsh180,000 ($113) a month for four family members,” Mr Mwazile said, adding: “Today, I need nearly Tsh300,000 ($156.25) to foot the same bill.” Although the cost of food, fuel, power and housing has risen drastically in the country, incomes for the majority of the households have not. Tanzania’s inflation escalated by 0.2 per cent to 6.5 per cent in August, compared with 6.3 per cent the previous month, but independent economists estimate that real cost of living rose by up to 30 per cent. Ephraim Kwesigabo, director of the statis- Central Bank of Kenya. Central banks in the region have gone to the market in the past week to stabilise the local currencies. Picture: File eign exchange reserves is on the back of weak fundamentals,” Mr Osoro said, adding that the shilling would lose more ground. Financial market analyst Al- ly Khan Satchu said CBK was attempting to soothe frayed nerves He said: “We are seeing the dollar strengthening against the shilling, a scenario that can be compared to the post-2007 election performance in. “If demand continues this way and we have low inflows, we will breach 89 to the dollar.” Philip Awandu, a financial an- alyst, said the market was awash with the local currency due to renewed government spending and maturing bonds and that there was a shortage of forex. This week has seen CBK buy Excess liquidity that CBK bought from the market this week, against BoU’s $46m and BoT’s $55.5m as Rwandan franc depreciated slightly $38.25 million of excess liquidity from the money market as it sought to mop up the shilling for nine sessions in a row. “Draining excess liquidity supports the shilling by making it more costly to hold dollars,” Mr Awandu said. In late August, CBK sold dol- lars into the market after the shilling hit 88.80/90, then its lowest since December 2011. Early last week, commercial banks quoted the shilling unchanged at 89.05/25 to the dollar, its weakest since it hit 89.10/ 20 mid December 2011. Low export earnings In its September East Africa economic flash note, Dyer & Blair Bank said the Kenya shilling was likely to remain under pressure with tea and coffee earnings at four-year lows. Horticulture exports, among the top three commodity export earners, have also declined. In 2011, when the shilling hit an all-time low of 107, CBK Governor Njuguna Ndung’u ramped up the key lending rate threefold to 18 per cent to stabilise the battered currency and cap consumer prices. Bank of Uganda (BoU) has also been in the market for $46 million this month after the Uganda shilling fell to 2,655/ 2,665, its weakest since February 2013, helping the currency to strengthen to 2,580/2,590. The Bank of Tanzania (BoT) said on its website that it traded $55.5 million on the interbank forex market over the past week to support the Tanzania shilling, which was trading at 1,680 units to the dollar compared to 1,660 in August. “The Tanzanian currency con- tinues to weaken against the dollar as importers demand outweighed inflows” the Standard Chartered Bank Daily Market Commentary said. The Rwandan franc slight- ly depreciated by 1.9 per cent against the greenback due to high demand for forex to finance imports in the first half of the year. However, inflation has remained below one per cent. Lawson Naibo, chief oper- ating officer of Bank of Kigali (BK), said depreciation was expected due to dependance on imports. BoT Governor Prof Benno Ndulu. Picture: File tics body, while releasing the August inflation results, indicated that the increase was a result of demand of non-food items. Mr Kwesigabo said that month-on-month inflation rose by 0.1 per cent in August, the same rate as in the previous month. In April, Bank of Tanzania Governor Prof Benno Ndulu said the expected increase of food prices in East Africa might pose a risk to inflation within Tanzania. Mzumbe Business School’s MBA-CM can- didate Yohana Sintoo told The EastAfrican the challenge lies in the fact that growth was driven by technology-intensive sectors. In an exclusive interview in Dar es Salaam, Sri Mulyani Indrawati, the managing irector and chief operating officer, said the story on Tanzania’s economic growth is very impressive but the declining poverty isn’t as fast as we expect for a country growing at 7 percent.
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