By Alawi Masare The Citizen Reporter Dar es Salaam. The central bank yesterday moved to save the weakening shilling and put a stop to the runaway inflation by instituting measures that would tighten money supply in the economy and pump more foreign currency into the markets.A combination of factors including the depreciating shilling has sparked an increase in commodity prices, mainly foodstuffs, making basic necessities less affordable. In a crisis meeting with heads of commercial banks, the BoT governor Benno Ndulu announced various policy measures, key among them being the reduction of core capital of foreign exchange dealers from 20 per cent to 10 per cent to facilitate the release of more forex into the market to strengthen the shilling, bankers who attended the meeting told The Citizen yesterday. The exchange rate has been Sh1,765 to the dollar as of last week, having lost 14 per cent of its value since the start of the year. Experts predict the exchange rate will reach Sh2,000 by the end of the year but it gained as much as 0.6 per cent, chaning at 1,685.5, and 1,688.7 per dollar by Tuesday this week. Mr Ndulu also announced raising central bank rate by 200 basis points to 9.58 per cent. This is the rate at which commercial banks can borrow from the BoT and will mop up excess money from the circulation resulting to lower inflation and stronger shilling, according to Mr Aziz Chacha, an official with the NMB Bank who attended the meeting. "The central bank also increased cash reserve requirement on government deposits from 20 per cent to 30 per cent. This means the BoT will now hold 30 per cent of all government money deposited at the central bank as part of the move to reduce money circulation," Mr Chacha said. The new policy measures are expected to be announced by the BoT later this week. Efforts to get Mr Ndulu for further comment on the measures failed, but the BoT Director of Economic Research and Policy, Joseph Masawe confirmed the meeting happened. He was not in a position to offer any details saying that was the responsibility of the governor. Other bankers who spoke to The Citizen said they received the news with a caution and optimism and will have to "wait and see" how effectively the measures address the targeted problems.The chairman of the Tanzania Bankers Association, who also attended the meeting, said despite good intentions of the central bank, the hard part was to transform the policy moves into action. Some of them might not achieve desired results. He said reducing the amount of money in circulation, which currently stands at 75 per cent, would result in higher lending rates, which would in turn be detrimental to the growth of the private sector. "It is very difficult to get the required amount of money which is in people's hands into the banking system," Mr Mafuru who is also the NBC managing director said.He added, however, that there is no specific ratio stipulating how much remains in the circulation and how much stays in the banking system. "The BoT has the power to control money supply to check inflation and it can, therefore, apply its tools whenever it deems it fit," he said.There is no specific ratio of the money in the banking system and that which is in the hands of individuals but the central bank can decide on the interest of price stability," he added.Mr Chacha noted that the policy decisions will definitely affect the way banks do business "and certainly with all good intentions from the government." The measures are part of regionally coordinated efforts to salvage the economies of EAC member states that have been badly hit by high inflationary pressures and free falling currencies.Central bank governors met in Nairobi last week where they agreed to take immediate steps to contain the situation. The inflation rates of the three largest regional economies have been steadily rising since the beginning of the year with Uganda recording 28.3 per cent, Kenya 17.32 and Tanzania 16.8 per cent in the year ending September. BoT reaction to the staggering key aspects of the economy, inflation and the currency, however, follows months of hesitation and reluctance by the governor on the assumption that a weaker shilling was beneficial to exporters. Source: The Citizen. Angalizo: Pumping more foreign currency will only solve the situation in short term baada ya miezi michache Shillingi itazidi kuporomoka. Kuongeza Interest rate on loans kutaua ukuaji wa sekta ya uzalishaji which may lead to a much tougher fall in Tanzania economy. Increasing reserve ratio will force banks to lend less na matokeo yake mikopo itakuwa haba na wafanyabiashara wadogo wataumia. Ninarudia tena there is a little monetary policy will be able to do to save Shilling. Shillingi inaathiriwa na demand kubwa ya foreign currencies nchini. Bila ya kuwepo a tightening of fiscal policy this is pointless . Litatuliwe tatizo la umeme ili kuboost uzalishaji nchini. Punguzeni dollarisation nchini. Wahamasisheni wawekezaji kujiandikisha nchini ili kupunguza demand for foreign currency. Inflation nchini inasababishwa na imported factors (kutokana na kutegemea zaidi imports kuliko exports), pia inasababishwa na kuongezeka kwa gharama za uzalishaji nchini kutokana na kupotea kwa umeme. Isitoshe ufisadi nao unachangia kwani watu wana fedha mfukoni zisizokuwa na mpangilio na matumizi makubwa ya fedha za kigeni.