In January 2025, the Tanzanian Shilling traded at an average of TZS 2,454.04 per USD, reflecting a 1.37% depreciation from TZS 2,420.84 in December 2024. However, on an annual basis, the Shilling appreciated by 2.6%, showing long-term stability. Foreign exchange market activity declined, with transactions dropping from USD 95.7 million in December 2024 to USD 16.3 million, while the Bank of Tanzania intervened by selling USD 7 million to stabilize the currency. Despite short-term pressures, foreign exchange reserves rose to USD 5,323.6 million, covering 4.3 months of imports, ensuring continued exchange rate stability.

1. Exchange Rate Movement: Slight Depreciation in January 2025

• In January 2025, the Tanzanian Shilling traded at an average of TZS 2,454.04 per USD, compared to TZS 2,420.84 per USD in December 2024.
• This reflects a monthly depreciation of approximately 1.37%, meaning the Shilling weakened slightly against the US dollar.
• However, on an annual basis, the Shilling appreciated by 2.6% compared to January 2024.

What It Means:

✅ The Shilling remains relatively stable, with only a minor depreciation (1.37%) month-over-month.
✅ Annual appreciation (2.6%) suggests a stronger Shilling compared to early 2024, reflecting better forex reserves and trade performance.
⚠ The slight monthly depreciation indicates short-term pressures, possibly due to increased import demand or external debt repayments.

2. Foreign Exchange Market Activity: Declining Transactions

• Total forex market transactions dropped to USD 16.3 million in January 2025, from USD 95.7 million in December 2024.
• The Bank of Tanzania intervened by selling USD 7 million to stabilize the market and prevent excessive depreciation.

What It Means:

✅ Lower forex market activity suggests reduced speculative trading, contributing to exchange rate stability.
✅ Bank of Tanzania’s intervention helped control excessive depreciation, ensuring Shilling stability.
⚠ A decline in foreign exchange market transactions could indicate lower foreign investment or trade activity.

3. Foreign Exchange Reserves Support Stability

• Foreign exchange reserves stood at USD 5,323.6 million in January 2025, compared to USD 5,107.1 million in January 2024.
• These reserves are sufficient to cover 4.3 months of imports, exceeding the national benchmark of 4 months.

What It Means:

✅ Stronger forex reserves contribute to Shilling stability by ensuring the country can meet external obligations.
✅ Sufficient reserves reduce pressure on the Shilling, helping manage exchange rate fluctuations.

Summary of Key Trends

Economic Implications of Shilling Stability

🔹 Positive Signs:
✅ Annual appreciation (+2.6%) shows long-term strength of the Shilling.
✅ Sufficient foreign exchange reserves (USD 5.3 billion) provide stability.
✅ Bank of Tanzania’s intervention controlled excessive depreciation.

🔸 Challenges:
⚠ Short-term depreciation (-1.37%) suggests forex market pressure.
⚠ Declining forex market activity may indicate lower trade or investor participation.
⚠ Heavy reliance on USD (68.1% of external debt) increases exchange rate risks.

Key Insights from Tanzania’s Shilling Stability (January 2025)

1. The Shilling Depreciated Slightly in the Short Term (-1.37%)

• The exchange rate moved from TZS 2,420.84 per USD in December 2024 to TZS 2,454.04 per USD in January 2025, showing a 1.37% depreciation.
• This suggests increased demand for USD, possibly for imports, debt servicing, or foreign investment repatriation.
• The Bank of Tanzania sold USD 7 million to stabilize the exchange rate, preventing excessive depreciation.

What it Means:

✅ The depreciation is minimal, meaning the Shilling remains largely stable.
⚠ Increased USD demand could signal rising import costs or capital outflows.
✅ Central Bank intervention helped prevent sharp currency fluctuations.

2. Long-Term Strength: The Shilling Appreciated by 2.6% Year-on-Year

• Compared to January 2024, the Shilling strengthened by 2.6%, meaning it performed better than the previous year.
• This suggests stronger forex reserves, improved exports, or controlled inflation.

What it Means:

✅ Tanzania’s economy is stable enough to maintain long-term Shilling strength.
✅ A stronger Shilling benefits businesses by reducing the cost of imported goods and debt repayments.

3. Forex Market Activity Dropped Significantly

• Forex market transactions declined from USD 95.7 million in December 2024 to USD 16.3 million in January 2025.
• Lower trading volume suggests reduced foreign exchange demand from businesses and investors.

What it Means:

⚠ Reduced forex transactions could indicate lower trade activity or reduced foreign investment inflows.
✅ Lower speculation in the forex market contributes to exchange rate stability.

4. Strong Forex Reserves Support Stability

• Foreign exchange reserves stood at USD 5,323.6 million, enough to cover 4.3 months of imports, above the national target of 4 months.

What it Means:

✅ Sufficient reserves reduce exchange rate risks, ensuring the government can manage forex fluctuations.
✅ The Shilling has a strong backup, reducing the likelihood of a major devaluation.

Overall Economic Implications

🔹 Positive Signs:
✅ The Shilling remains stable overall, with only minor fluctuations.
✅ Long-term appreciation (+2.6%) shows economic resilience.
✅ Strong forex reserves (USD 5.3 billion) help maintain stability.

🔸 Challenges:
⚠ Short-term depreciation (-1.37%) could indicate temporary pressure on the currency.
⚠ Declining forex market transactions suggest lower trade or investor activity.
⚠ High USD-denominated debt (68.1%) makes the economy vulnerable to exchange rate fluctuations.