Kenyan, Ugandan shilling seen firm, Tanzania weaker

[Invisible]

NAIROBI, Dec 17 (Reuters) -

The Kenyan and Ugandan shillings are expected to firm against the dollar in the week to Wednesday, while the Tanzanian currency is forecast to weaken, dealers said.

KENYA

The Kenya shilling (KES=) is forecast to firm further against the dollar in the coming week, helped by low demand for the U.S. currency from corporate clients who are closing for the Christmas break.

At 1220 GMT, commercial banks quoted the local unit at 77.00/20 to the dollar, compared with last Wednesday's close of 78.10/20. The shilling was seen trading in the 76.50-77.50 range against the dollar in coming days.

"Most corporates have already done away with their commitments and because most of them normally close for Christmas ... dollar demand has been suppressed," said Jeremiah Kendagor, head of foreign Exchange at Kenya Commercial Bank.

"There will be more of the same low demand ... I think the shilling will close on a firm note," he said.

The shilling's day-to-day movements are boosted by U.S. currency inflows from sectors like tourism, agriculture and remittances from abroad, while dollar demand from areas like manufacturing and energy weaken the local unit.

TANZANIA

The Tanzania shilling (TZS=), however, was expected to weaken during the week, thanks to increased demand for the U.S. currency from corporate clients, especially oil companies.

Commercial banks quoted the shilling at 1,300/1,310 to the dollar, compared with last Wednesday's close of 1,280/1,290.

Dealers said they expected the shilling to trade in the 1,280-1,310 range against the dollar in coming days.

"There is still big demand from the oil sector and little supply," said Hakim Sheikh, a dealer at Commercial Bank of Africa Tanzania.

"There are no dollars. We buy most of the time from Bank of Tanzania and they intervene with very small amounts."

Dealers said telecoms firms, in addition to oil companies, were also seeking the U.S. currency during the week.

"We have seen some increased demand from mainly telecommunication companies coming to the markets," said Christopher Makombe, head of trading at Standard Chartered Bank Tanzania.

Dealers said there was also offshore demand for the dollar over the past week.

UGANDA

The Uganda shilling (UGX=) is projected to remain firm against the dollar, due to an increase in year-end flows of the U.S. currency and waning demand, dealers said.

Commercial banks in Kampala posted the local unit at 1,955/1,965 to the dollar, compared with last Wednesday's rate of 1,960/1,970.

Dealers said they expected it to trade in the 1,950-1,980 range over the coming days.

"We have seen some year-end inflows coming in from the non-governmental organisations and Ugandans living abroad," said Denis Mushabe Mashanyu, a dealer at Standard Chartered Bank Uganda.

Dealers said the shilling had been resurgent against the dollar in the past few days as demand for the U.S. currency waned ahead of the Christmas holiday season.

The Central Bank offered 65 billion shillings at Wednesday's Treasury bill auction. Last week the Central Bank rejected all bids for the 50 billion shilling two-year treasury bond.

(Reporting by George Obulutsa in Nairobi and Susan Nabadda in Kampala; Editing by David Clarke)

 

[Mwanjelwa]

NAIROBI, Dec 17 (Reuters) - (Reporting by George Obulutsa in Nairobi and Susan Nabadda in Kampala; Editing by David Clarke)

Does it mean oil companies in Kenya and Uganda import in their local currencies? Probably they have enough reserve? Any economist to enlighten?

 

[MgonjwaUkimwi]

Mwanjelwa,
Kenya and Uganda, like Tanzania, import oil using international currencies like US$ and the like. In Kenya, kenyan shilling is projected to be firm not because Kenyan oil importing companies import oil using Kenyan shilling. It is because ""Most corporates have already done away with their commitments and because most of them normally close for Christmas ... dollar demand has been suppressed," said Jeremiah Kendagor, head of foreign Exchange at Kenya Commercial Bank[/I]." Put it differently, foreign exchange trading is temporarily defunct due to holiday season.

In Uganda, the demand of US$ is projected to be low because non-governmental organisations and Ugandans living abroad increase the demand for Ugandan shilling during holiday season.

In Tanzania the situation is different. Demand for US$ is projected to increase as oil importing companies want to import more.

Tanzanian oil importing companies could be acting on speculation that international oil prices will go up in the near future and therefore decide to import more before price increase (as a matter of fact a recent reduction on oil supply support such speculation). Kenyan and Ugandan oil importing companies may be speculated the opposite, or may be other factors such ending year comittment (in Kenya), or inflow of US$ (in Uganda) outwheigh a small oil-driven increase of demand for US$.

 

[Lole Gwakisa]

Thanks invisible and Mgonjwa wa ukimwi for the enlightening posts.
How ever the downward trend of the Tanzanian shilling is worrying and I hope the BOT will ease this pressure to make imports affordable.

 

[MgonjwaUkimwi]

Thanks invisible and Mgonjwa wa ukimwi for the enlightening posts.
How ever the downward trend of the Tanzanian shilling is worrying and I hope the BOT will ease this pressure to make imports affordable.

Under the current global economic crisis there isn't much BoT can do. Under normal circumstance you would expect BoT to dish out US$ in an attempt to reduce the demand for US$; this is impractical given the on-going world economic crisis as poor countries need foreign currencies more than ever.

Our hope is for the government to perhaps, though against the principles of free market economy, to discourge importation and consumption of goods and services that are also locally produced along with discouraging dolarization of the Tz economy. Consumption of locally produced goods and services reduces (or at least stabilizes) the demand for US$ and hence appreciates local currency.