The shilling has been under pressure and experts predict it is likely to
weaken further if there is no major intervention. PHOTO BY EDGAR R
BATTE
Kampala. Huge demand mainly
from the energy and manufacturing sectors coupled with a continuously
strong dollar have impacted the shilling forcing it to depreciate
heavily.
The local unit has been under pressure since
the beginning of the year and analysts predict it will weaken further
due to increasing petroleum imports.
By close of
business yesterday Bank of Uganda quoted the unit at 3,767, which was
weaker than it had opened at the start of May at Shs3,722.
The unit had entered the Shs3,700 region towards the end of April and has since been moving northwards, breaking depreciation records almost on a daily basis.
The unit had entered the Shs3,700 region towards the end of April and has since been moving northwards, breaking depreciation records almost on a daily basis.
Mr Stephen Kaboyo, the managing partner at Alpha Capital, a forex trading and equity tracking company, yesterday told Daily Monitor that the shilling continues to remain under immense pressure due to a surge in demand mainly from energy and manufacturing.
The energy demand, he said, was on account of fuel dealers that are building stocks due to volatilities in the global oil market.
Experts say the shilling will continue to breach key resistance levels and if demand persists, it is likely to cross into the Shs4,000 range before close of the year.
The energy demand, he said, was on account of fuel dealers that are building stocks due to volatilities in the global oil market.
Experts say the shilling will continue to breach key resistance levels and if demand persists, it is likely to cross into the Shs4,000 range before close of the year.
Dr Adam Mugume, the Bank of Uganda
director for research, attributed the depreciation to the strengthening
dollar coupled with increasing demand for imports and dividend payout.
“International oil prices have risen, implying that imports for petroleum products have sharply increased. Usually, depreciation is stronger at this time of the year,” he said.
“International oil prices have risen, implying that imports for petroleum products have sharply increased. Usually, depreciation is stronger at this time of the year,” he said.
Yesterday Mr Mugume also said
that the Central Bank would not intervene in the market as the
depreciation was driven by economic fundamentals.
“For now our judgment is that depreciation is a result of economic fundamentals,” he said.
“For now our judgment is that depreciation is a result of economic fundamentals,” he said.
The trend has already affected the market and is threatening to impact prices of imported goods.
Mr Everest Kayondo, the Kampala City Traders Association chairman, told Daily Monitor yesterday there should be serious intervention to protect the economy, which has been facing challenges lately.
Mr Everest Kayondo, the Kampala City Traders Association chairman, told Daily Monitor yesterday there should be serious intervention to protect the economy, which has been facing challenges lately.
“If
government does not exercise discipline on its expenditure and now that
Central Bank is asking for a buffer to restock, then we are likely to
see the shilling hit record lows against the dollar and other
currencies,” Kayondo said.
The shilling has for a long time faced volatilities because of increasing imports that have for a long time outpaced exports.
The shilling has for a long time faced volatilities because of increasing imports that have for a long time outpaced exports.
dnakaweesi@ug.nationmedia.com
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