BoU intervenes in market to save weakening shilling

Kampala.

Bank of Uganda has intervened in the forex exchange market as the shilling continues to weaken against the dollar.
The local unit, which has since the beginning of the year breached key resistance levels, closed last week at Shs3,809, but, according to analysts, could soon hit the Shs4,000 mark given the speed at which it losing against major currencies.
Speaking during the Uganda Banker’s Institute general annual meeting at the weekend, Mr Louis Kasekende, the Bank of Uganda (BoU) deputy governor, said they had been forced to intervene in the market to curb the rate at which the shilling was losing.
The unit has since the beginning of the year lost by around Shs250 with the worst breach registered in May.
“We are not indifferent to volatility, especially that has been driven by speculative trading. We intervened today [Friday] by selling dollars in the forex market,” he said.
Earlier the Central Bank had told Daily Monitor it would not intervene as the depreciation was being driven by economic fundamentals such as demand in the energy, corporate and interbank sectors.
The shilling has also been put under pressure by a continued weak balance of payment that has been characterised by increasing imports against an almost stagnant export market.
Mr Kasekende said the Central Bank was committed to a market determined exchange rate that supports the economy’s adjustment to changes but speculative trading, he said, had forced Bank of Uganda to intervene in the market.
“I want to remind all forex traders and financial institutions that the exchange rate is not a one-way bet and the Bank of Uganda has adequate reserve buffers, (import cover of 4.9 months) as at April 2018 to support the currency whenever we deem the movements to be out of line with economic fundamentals,” he told the meeting.
Daily Monitor could not readily establish how much the Central Bank had injected in the exchange market but sources familiar with the matter put the figure at between $5m and $10m.
Experts have also predicted that the shilling will continue to breach key resistance levels and if demand persists, it is likely to cross into the Shs4,000 range before the end of the year.
Mr Stephen Kaboyo, the lead partner at Alpha Capital, a forex trading firm at the weekend told Daily Monitor, the shilling has been undermined by strong demand from commercial banks, manufacturing and energy sector.
“Forecast for the shilling indicate further weakening on expected demand from importers with global oil price developments being a major factor to watch,” he said.