Food, oil putting pressure on Tanzania inflation

BY BUSINESS REPORTER AND AGENCIES

TANZANIAN food exports and oil imports are boosting inflationary pressure though recent measures to support the currency should help economic stability, a deputy governor at the central bank said.

Food, fuel and energy costs have helped drive the inflation rate in the region's second biggest economy into double digits, while the shilling has hit a string of record lows and is down more than 13 percent against the dollar this year.

"I am confident things will improve ... but we are facing a number of challenges and inflationary pressures, notably oil imports," Lila Mkila, one of three Bank of Tanzania deputy governors, told reporters.

"There is infrastructure financing by the government, so you need the (U.S.) currency in very high demand. We are also seeing pressure from neighbouring countries in terms of food exports," he said on the sidelines of a mortgage finance meeting.

Mkila also said Tanzanian plans to issue a debut $500 million eurobond to fund infrastructure projects were on track, despite the global market turmoil, and there were ongoing talks with Citi about appointing the bank as the transaction adviser.

Some of the key measures the central bank introduced this month to curb inflation and the shilling slide include raising the statutory minimum reserves for commercial banks from 20 percent to 30 percent to try and mop up excess liquidity.

It also lowered the foreign exchange net open position limit that banks can hold from 20 percent to 10 percent.

Tanzania -- one of Africa's biggest per capita aid recipients -- increased infrastructure spending in its 2011/12 budget by 85 percent to 2.78 trillion shillings.