Tanzania Daily News (Dar es Salaam)
Abduel Elinaza
14 December 2011
The Bank of Tanzania (BoT) is on Thursday expected to issue the new official inflation rate, which observers felt would be a major indicator of the success of intervention measures to save the shilling from freefall of the last two months.
Monthly inflation hit a decade high of about 18 per cent in October, compelling the central bank to wrestle with the problem as prices threatened to hit through the roof.
“The soon to be released inflation figures for November will be key; they will shed light as to whether all this liquidity tightening is starting to have positive impact,” the Standard Chartered Bank said in its Daily Market report on Wednesday.
The measures saw the shilling appreciating to a two-month high of below 1,640/- against the US dollar from the lowest point of 1,850/- two months ago when the local currency appeared to tumble out of control.
Otherwise, the market expects the new figure to dip substantially following the tight liquidity measure implemented by the central bank since mid October. Given the high inflation rate and a weak shilling, which are double economic evils the country is struggling to get rid off, the coming year will start on a tough gear for many.
Tanzania Securities Business Analyst, Joel Nkya, said the Dar es Salaam Stock Exchange has experienced a low level of activity which persisted in the recent days following tight liquidity and high inflation.
“This has pushed yields for fixed income securities and money market instruments high,” Mr Nkya said. The effects of high inflation, among other things, include keeping the DSE All Share Index (DSEI) and Tanzania Share Index (TSI) to remain flat. DSEI closed at 1303.84 points while TSI closed at 1142.97 points.
However, economists see no light at the end of the tunnel as spiralling inflation and weak shilling were rather fiscal issues following the collapse of supply side and not demand part of the whole equation.
“The BoT intervention was a monetarist approach to structural problems of the economy. It is a wrong solution to correct a problem in the long term scenario,” Dr Honest Ngowi of Mzumbe University, Dar es Salaam Business School said.
The implications of high inflation and weak shilling include falling standards of living and low demand for almost all goods and services.
But schools will open in January, hardly a month away and parents will have no option except to meet the cost of going back to classrooms, which will have the total effect of reducing further the amount of money in circulation.
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