Shilling continues to depreciate as BoU intervenes
Posted Thursday, July 10 2014 at 01:00
Experts say the weakening is part of an overhaul process
The Ugandan Shilling has exhibited its weakest stance since the beginning of the year, a situation experts predict will continue all through the month.
By close of business yesterday, Bank of Uganda (BoU) quoted the Shilling at 2,650 buying and 2,660 selling against the US dollar, down from Tuesday’s 2,646/2,656 and 2,600/2,610 it traded two weeks ago.
Talking to the Daily Monitor about the reason behind this depreciation, the BoU director of research, Dr Adam Mugume, said the Shilling has lost ground, depreciating by about 1.7 per cent so far in the month of July compared to June but by 1.4 per cent on annual basis, adding that the movement should be of great concern if it exceeded 5 per cent in either direction.
“The reasons for depreciation include seasonal factors and also the dividend payments by large corporations like MTN. In addition, demand for imports is on the increase in part; as oil prices edge up, the demand for dollars to import the same volume of fuel increases,” he said.
Dr Mugume also said with the anticipation of further international oil price increases due to the geopolitical factors in the Middle East, and farther currency weaknesses, will bring forward the purchase for dollars by the oil companies thus putting further pressure on the shilling.
The BoU has intervened to reduce the volatility, selling on a net basis about $5.2 million in the month of July.
“The response of intervention by the BoU to manage volatility remain the optimal policy response. Given the strong foreign exchange reserves, BoU will intervene to manage volatility and maintain the daily purchase of about $4 million where possible, some of which it use to intervene and manage the volatility, Dr Mugume said.
The shilling has weakened against other currencies especially the Kenyan shilling. Currently, the Uganda shilling trades at Ksh30.1/30.2 from the previous 29.4/29.5 region where it has been since the beginning of the year. Experts say this situation will raise the cost of doing business with neighbouring state.