USD Depreciates Against Tanzanian Shilling: A Comprehensive Look at Last Month Currency Dynamics
The week of December 9 to December 15, 2024, witnessed a notable depreciation of the US dollar (USD) against the Tanzanian shilling (TZS), capturing the attention of currency markets and economic analysts. This shift, while subtle in its day-to-day movement, reveals broader economic trends that are influencing currency exchanges across East Africa and beyond. In addition to the USD’s dip against the TZS, comparisons with the Euro (EUR), British Pound (GBP), and Kenyan shilling (KES) provide valuable insights into this economic phenomenon.
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At the start of the month on Tuesday December 9, the USD was trading at around 2,513 TZS per dollar. By Friday, the rate dropped to 2,294 TZS, marking lowest exchange rate of the year. This was part of a broader trend, with the Tanzanian shilling showing unexpected resilience against major global currencies.
When compared to the Euro, which traded at approximately 2,406 TZS, the shilling demonstrated similar strength, holding steady despite slight fluctuations in the European markets. The British Pound, also saw a depreciation of 2,919 TZS against the Tanzanian currency. Interestingly, the Kenyan and Ugandan shilling, another key currency in the East African Community, was also outperformed, trading at the rate of 17.7, compared to 21 just a few weeks ago, further highlighting the robustness of the Tanzanian economy during the week.
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Key Drivers of the USD’s Decline
The drop in the value of the USD against the Tanzanian shilling, and its relatively weaker performance compared to the Euro and Pound, can be attributed to several interrelated factors:
Tanzania has recently shown strong economic indicators, including steady GDP growth and a positive trade balance. Investments in infrastructure and energy projects have bolstered economic confidence, leading to greater demand for the TZS in regional and international markets.
The Bank of Tanzania (BoT) has maintained a tight monetary policy to curb inflation, which stood at a manageable 4.2% in November 2024. Meanwhile, the US Federal Reserve has been cautious, recently lowering its interest rates to stabilize economic growth. This divergence in monetary policy stances has contributed to investors to deviate their investments to alternative markets causing a larger supply of USD in the global market.
Tanzania’s reserves of foreign currencies have improved due to increased tourism revenue and strong exports, particularly in the agriculture and mineral sectors. Cashew nuts, coffee, and gold remain top earners, stabilizing the shilling against external pressures.
Investor sentiment has also played a critical role. With geopolitical tensions easing in parts of Africa and East Asia, there has been a renewed interest in emerging markets like Tanzania. The USD, viewed as a safe-haven currency, typically weakens when global risk appetite increases.
The Kenyan shilling’s ongoing political struggles, driven by higher inflation and increasing debt levels, have positioned the TZS as a relatively stable alternative within East Africa. The Burundian and Rwanda Francs depreciated by 0.16% and 1.03% respectively while the Kenyan and Ugandan shilling declined 0.15% and 0.3% respectively. This regional dynamic has likely added upward pressure on the TZS relative to the USD.
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The recent resilience of the Tanzanian shilling against the Dollar underscores the complex interplay of local and global economic factors. Tanzania’s economic resilience, coupled with prudent monetary policies and favorable market conditions, has strengthened the TZS against major currencies, in comparison to their EAC partners.
For policymakers, businesses, and consumers, these developments are both an opportunity and a challenge. With careful management and continued investment in key sectors, Tanzania can leverage this momentum to bolster its standing as a leading economy in East Africa. However, maintaining this position will require vigilance against external shocks and ongoing regional economic dynamics
The Tanzanian Times 