Shilling drops to Shs3,000 again

 

A forex trader exchanges Uganda Shillings for US dollars. The Uganda Shilling has been depreciating against the dollar. FILE PHOTO 

By Dorothy Nakaweesi

In Summary

This is attributed to surging demand and increased Shilling liquidity in money markets

KAMPALA.

After three weeks of struggling, the Uganda Shilling let loose of its posture, closing the Easter holiday weekend at the Shs3,000 mark against the dollar.

By close of business yesterday, the Shilling was trading at 2,998/3,008 buying and selling respectively, according to Bank of Uganda’s records while forex traders quoted it at Sh3,020.

Experts in the market attribute this plunge to the surging demand and increased Shilling liquidity in the money markets.

In an interview with Daily Monitor, Mr Faisal Bukenya, Barclays Bank head of money making, said: “We have seen build-up of demand from interbank as markets close for the long Easter holiday but also there has been long need for the dollar.”

The depreciating Shilling partly explains why the country’s core inflation, the most watched index, increased to 3.7 per cent from 3.3 per cent.

Similarly, more commercial banks are taking a cue from the conditions in the financial markets by announcing upward changes in their lending rates.

Bank of Uganda’s director Communication, Ms Christine Alupo, attributes the depreciation to the strong corporate demand for the dollar, coming mainly from manufacturing, energy and telecommunications sectors, and this is putting pressure on the Shilling.

“As previously explained, the BoU does not target a specific level or direction of the rate, but remains committed to ensuring that movements of the exchange rate are orderly and do not in any way jeopardise the attainment of our price stability objective of 5 per cent annual core inflation over the medium term,” Ms Alupo said .

Experts say this is likely to constrain credit flow and depress economic activity further for businesses that are already taking a hit from currency headwinds.

Alpha Capital’s managing director, Mr Stephen Kaboyo, said: “As the policy meeting gets closer, the challenge for Bank of Uganda (BoU) is what direction they take to manage the balance between a depreciating currency and rising interest rates.”

Since January, BoU has injected about $200 million (Shs600 billion) in trying to calm the situation