EA banks in bid to tackle global financial crisis

Two East African Central Banks of Tanzania and Kenya mid this week separately noticed speculative foreign exchange trade in their respective countries and expressed readiness to tackle any speculation in their financial markets caused by the global financial crisis.

The Tanzania shilling had lost close to 4 per cent against the dollar since Monday while the Kenya shilling had weakened over 8.5 per cent in October to a near four-year low against the dollar by Wednesday as the effects of the global credit crunch spread to east Africa`s biggest economy.

In Tanzania, local unit had lost close to 17 per cent compared a year ago, with most of the weakness coming in the past few weeks.

Commercial banks are quoting the local unit at 1,300/1,320 to the dollar.

But in Kenya, the unit closed trade at 79.45/55 against the dollar compared with 78.10/20 when the market closed on Tuesday. Kenya shillings was on Thursday being exchanged for shilling 18.41 Tanzanian Shilling.

``The Bank [of Tanzania] will face head-on any disruptive speculative behaviour in the market, including ensuring that the code of conduct of the Interbank Foreign Exchange Market is strictly adhered to,`` Governor Benno Ndulu said in a statement issued late on Wednesday.

Ndulu said there had been speculative demand for hard currency in the East African region, spurred partially by customers worried about the availability of foreign currency due to the current global financial meltdown.

``Some are trying to buy and hoard for the future. I wish to assure the public that our banking system backed by our reserves will have enough foreign exchange to meet normal business needs. There is no need to panic or speculate,`` Ndulu said.

Kenya`s foreign exchange market has also been assured not to panic over the slide of the shilling in that country versus the dollar, the central bank governor said on Wednesday, adding that he expected the local unit to stabilise in \"the next few days.``

``The key message is that the market is working, there should be no panic, it is turbulent but it will steady,`` Governor Njuguna Ndungu told Reuters, adding that the local currency was being pushed by the dollar`s global appreciation.

The volatility in the local market was caused by banks trading ``to cover their short run positions,`` Ndungu said.

``(I) see the local unit steady in the next few days. Once the self-fulfilling expectations cool down, it will stabilise to its long run mean.

The data shows that the currencies in (regional countries) are moving the same direction, once the US banks start lending actively, these effects (should) peter out.``

Ndungu said the Kenyan shilling was actually gaining against the Tanzanian, Ugandan and South African units.

``As much as the shilling is depreciating against the US dollar, many more countries` currencies are also losing value like the shilling,`` he said.

Last week, Ndungu accused some banks of speculation, which had said had put pressure on the shilling. The exchange rate is a topical debate right now and is of significant concern to everybody.

``The data shows we are not alone but the speculating banks are; only a few banks are showing this through trading.``

The Central Bank of Kenya has said it would only intervene to stabilise the shilling in speculative trade.

It stepped in on Friday and sold an unspecified amount of dollars, according to some dealers, temporarily cushioning the shilling`s slide.

Traditional sources of hard currency such as tourism were hit by a post-election crisis at the start of the year, and the country\'s import bill has been rising in line with global prices for fuel and other commodities.

Meanwhile, the International Monetary Fund latest outlook shows that economic growth in sub-Saharan Africa will slow to 6 per cent in 2008 and 2009 due to tough global conditions, while inflation is seen at 12 per cent this year.

``In an increasingly adverse global environment, sub-Saharan African growth is expected to slow to about 6 per cent in 2008 and 2009, down from 6.5 per cent in 2007,`` the IMF said.

``Meanwhile, inflation is projected to increase to 12 per cent in 2008 and 10 percent in 2009.`` In its latest regional economic outlook launched on Thursday, the IMF said the food and fuel price shock has put upward pressure on inflation and current account deficits although donor aid had failed to raise in tandem.

``The worsening macroeconomic situation reflects headwinds from strong increases in food and fuel prices, slower world growth and global financial turmoil.``

As a response to slowdown linked to the global financial crisis, Zambia`s government has already cut its economic growth forecast for 2008 to 6 perc ent from a previous targeted 7 per cent, a senior Treasury official said on Wednesday.

The southern African nation has been hard hit by a drop in world commodity prices and growing investor hostility to emerging market economies. Zambia is Africa`s largest copper producer.

* SOURCE: Sunday Observer