High demand for dollars exerts pressure on shilling
Government has hugely borrowed, which has weakened Uganda’s appeal to international financiers, according to Moody’s. File photo
What you need to know:
- 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.
- The shilling has for a long time faced volatilities because of increasing imports that have for a long time outpaced exports.
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.
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.
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.
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.
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.
“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.
