Shilling to close year stable

To be stable. The shilling though currently volatile is expected to remain stable up to year end.

The shilling is expected to be stable during the festive season as demand for the dollar in the domestic foreign exchange market slows down.
According to the central bank and dealers the local unit will until the end of the year stay stable due to reduced activity by the corporate in terms of imports.

Mr Faisal Bukenya, the Barclays Bank head of market making, told Daily Monitor that there has been a reduction in demand for the dollars from corporates leading to stability and minimal appreciation of the unit against the green back.

“Currently, dollar inflows are slightly higher compared to the demand for the dollar. Going forward, we expect the shilling to trade in the range of Shs2,675 and Shs2,700 at worse till year end,” he said.

On the other hand, Mr Bukenya said whereas the demand has slowed down, the bid side is still slightly high, an indication the inflows have not really increased.

The shilling closed yesterday buying at Shs2,690.26 for every dollar and selling at Shs2698.48 for every dollar.

Mr Stephen Kaboyo, the Alpha Capital managing director, told this newspaper that with the festive season setting in, there would be a reduced demand for foreign exchange as major players wind down for the holiday season.
He said: “The expected low market activity during this period will offer temporary relief, with the near term bias pointing to a weaker unit.
However, we expect depreciation pressures to start building up when market activity rebounds after the holiday season.”

Previous market trends have always pointed to seasonal factors including remittances from the diaspora as some of the key determinates for the strength of the shilling during the festive seasons.

However, Mr Kaboyo said the developments in the market indicate that seasonal effect may be less than in the previous years.
Over the past month, activities in the domestic foreign exchange money market indicated that the shilling had been volatile since November hitting a 13-month low against the dollar.

Mr Kaboyo said the unit had depreciated from the Shs2,580 level to the current trading level of Shs2,700.

The main reasons for the weakening shilling is Uganda’s weak trade balance position which has kept the shilling structurally frail.
The decline in yields on government paper in the second quarter made the debt market less attractive to offshore investors; hence, reducing capital flows which have been an important temporary support for the shilling especially during the period of high inflation.

For instance, there was a net withdrawal of portfolio flows from the debt securities markets, amounting to $20 million in October 2012. October marked the fourth consecutive month of net portfolio outflows.

moketch@ug.nationmedia.com