Exchange rate regimes and inflation in Tanzania
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Date
2004-02-02
Authors
Longinus Rutasitara
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
The study examines the influence of the major determinants of inflation with a particular
focus on the role of exchange rate policy changes. The gradual change in policy orientation
from “controls” to “market” in Tanzania is associated with a change from a highly
controlled exchange rate (until 1985) to a more liberalized regime from 1986 to the
present (2002). The parallel exchange rate dominated price changes from the late 1970s
to 1985; the parallel premium tapered off gradually from 1986, almost disappearing by
1992. The problem of inflation cuts across both regimes despite improvements in the
past four to five years. The model estimations using quarterly data for 1967–1995 show
that the parallel rate had a stronger influence on inflation up until the early 1990s compared
with the official rate. Continued macroeconomic (tighter monetary and fiscal), trade and
exchange rate reforms, and slow but steady improvements in the growth rates of GDP,
may explain the recent (1993–2002) fall in inflation and a more “stable” market for
foreign exchange in the inter-bank foreign exchange market (IFEM) arrangement. The
charged debates of the 1980s about devaluation are no longer fashionable, but the exchange
rate remains potentially sensitive to exogenous shocks and certainly any policy reversal
or similar lapse.
Description
HC 800.A1 A 342 138 2004
Keywords
Foreign - Exchange rates- Tanzania , Foreign - Exchange - Administration - Tanzania , Inflation (Finance)