Tuesday, April 9, 2013

RELIEF AS TANZANIA INFLATION FINALLY DROP TO SINGLE DIGITS


Monday, 08 April 2013 22:16  
 Dar es Salaam. The rate at which prices of goods and services increases slowed down to a 21-month low record of 9.8 per cent in March this year, the National Bureau of Statistics (NBS) announced yesterday.
 Inflation reached double-digit levels in June 2011 when it was recorded at 10.9 per cent from the May 2011 level of 9.7 per cent due to increasing prices of food, fuel and other non-food products.
 But Tanzanians may have found solace in yesterday’s announcement by the NBS director of population census and social statistics, Mr Ephraim Kwesigabo, that inflation was once again in single-digit levels, having dropped further from the February 2013 level of 10.4 per cent due to reduced food prices.
 “The decrease is mainly on account of the government’s effort to ensure that food prices are dropping,” he told journalists in Dar es Salaam.

 Analysts say a lower inflation rate pushes up the purchasing power of the local currency.
 It also helps to bring down the lending interest rates by captains and titans in the financial sector since, hoping that all other factors remain constant, the higher the inflation, the higher the interest a financial institution will charge.
 Higher inflation rates also imply huge losses to people with fixed incomes that are not inflation-adjusted as well as lenders with no inflation-adjusted interest rates – a majority of whom are those in the informal money lending markets, according to Dr Honest Ngowi, an economic analyst.
 And according to Mr Kwesigabo, the slowdown in inflation rate will enhance average return on investments in equities and improve investors’ appetite for equities.
 The drop in inflation rate augurs well for the government efforts to contain it back to single-digit levels as outlined in the 2012/2013 budget.
 The minister for Finance, Dr William Mgimwa, told The Citizen in Dar es Salaam recently that the government took the right measures and will continue to do so until inflation was contained to manageable levels before the next financial year.
 “We have done a lot to attain the 10.4 per cent in inflation rate, especially in both fiscal and monetary policies."
 "We expect that our single-digit target will be achieved before June,” Dr Mgimwa said on the sidelines of a meeting with MPs to discuss the 2013/14 budget guidelines in Dar es Salam recently.
 To control inflation, the government took several policy measures.
 In November 2011, when inflation reached 19.2 per cent, the BoT raised minimum reserve requirements on government deposits held by commercial banks from 20 per cent to 30 per cent and increased the bank rate to 12.0 per cent
 The bank rate is the basis on which the Bank of Tanzania charges interest on loans it extends to commercial financial houses and overdrafts to government.
 The BoT also announced 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 struggling shilling.
 A combination of factors including the depreciating local currency, which was changing at the lowest point of Sh1,850 per dollar, had sparked an increase in commodity prices, mainly foodstuffs, making basic necessities less affordable.
 All measures aimed at strengthening the local currency and reducing the cash supply in the market to contain inflation.
 And Mr Kwesigabo said yesterday that food and non-alcoholic beverages inflation rate has slightly decreased to 11.1 per cent in March from 12 per cent posted in February 2013.

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