Uganda Shilling firms against dollar

 

A trader counts money. The Shilling’s is expected to hold into this week. FILE PHOTO 

By  Dorothy Nakaweesi

KAMPALA- The Shilling closed the week at a much stronger stance against the dollar, signalling good news for importers who will spend less to transact business.

According to records from Bank of Uganda’s daily analysis of the Shilling’s performance, the local unit closed the week in the regions of 2,545/2,554. This was down from 2570/2575 region at the opening of the week.

Their view

Some experts partly attribute this to the Federal Reserve Monetary Committee meeting announcing maintaining low interest rates and the monthly bond purchases for now.

“The announcement resulted into a general dollar weakness as appetite for emerging markets assets rose,” Mr Herbert Zake, the Standard Chartered Bank’s head of corporate affairs said.

Director of research at Bank of Uganda Adam Mugume said the Shilling has gained unexpectedly.
The demand for dollars has been weak due to subdued domestic demand for imports which have been weak since the beginning of 2013.

“As, as expected, when BOU tightened monetary policy, in part this was to tighten liquidity and therefore contain possible depreciation pressures which could have strengthened inflationary pressures,” Mugume added.

A strong Shilling weakens inflationary pressures through the imported products, including fuel.

Mr Mugume said: “The strong foreign direct investments flows and expectations of even higher flows into the oil sector have to support the local currency appreciation.”

Experts further say the dollar has also weakened against other reserve currencies, especially the Euro, now trending at around 1.38$/€, compared to about 1.28$/€ in July 2013.

Yet on the regional front, the Kenya Shilling posted some mild gains after the Federal Reserve announcement touching 87.30 from 87.50/60 but strong energy demand seems to be holding for now.
The Tanzania Shilling was flat in the 1,615/20 range with minimal activity and we expect the level to hold into next week.

Prospects
Mr Zake said they expect the trend to hold into next week as the US Dollar –Uganda Shilling trades in the 2,540-60 narrow range.