While both the Ugandan and Kenyan shillings have depreciated against the US dollar since the start of the year, the Tanzanian shilling has been remarkably stable, trading for most of the year around the TSH1,500:USD1 range. The stability is unusual in that the Tanzanian shilling often weakens in the first quarter of the year as inflows onto the market-particularly from traditional export crops and tourism-are limited while demand is high. However, this year the stability is probably a result of the fact that the shilling was exceptionally weak in the 2008-10 period. The shilling depreciated against the US dollar by around 15% from the end of 2008 to the end of 2010. Looking back at the history of the currency, after periods of substantial depreciation, there is often a period of prolonged stability, and it could well prove that the shilling is in one of these periods again, with the exchange rate continuing to trade at around its current levels for much of 2011.

In contrast with the Bank of Uganda (the Ugandan central bank), the Bank of Tanzania (the central bank) has in recent years shown little inclination to intervene in the foreign-exchange market on a sustained-or even short but aggressive-basis, in response to any currency weakness. Instead it has preferred to continue slowly to build up its foreign-exchange reserves. At the end of 2010 foreign-exchange reserves had risen to US$3.9bn, up from US$3.47bn at end-2009. However, it is worth nothing that with the rapid growth in imports in 2010, reserves cover has actually fallen modestly. Using the provisional current-account data provided by the Bank of Tanzania in its Monthly Economic Report, the level of coverage has fallen from 4.9 months of import and service payments in 2009 to 4.6 months in 2010, although both levels are probably high enough so that the modest fall is unlikely to be of any major concern to the central bank.