At least $20m worth of foreign currency is traded monthly between banks in Uganda, according to a trading expert.
Speaking during a panel discussion on the current state of the financial markets at the Barclays Bank organised dealers meeting, Mr Peter Mbowa, the Barclays Bank (Absa) head of treasury, said there has been a steady inflow of foreign currency into the market, noting that: “On average, the volume of dollars traded in the interbank market is about $20m a month.”
On the whole, he said, Uganda has a dollar demand of $800m per month with exports needing at least $300m compared to $500m for the import bill.
However, Mr Mbowa noted, the Ugandan currency market lacks sophistication and cannot absorb large volumes of foreign currency.
Ms Brenda Lwanga, a currency trader at Citi Bank, said the shilling has been strong against the dollar because of a strong currency portfolio inflow in the last few months, which has seen demand and supply matching.
“In the past six months, the shilling has been appreciating against the dollar because of the inflows,” she said. But noted that activities in the currency market in the past two weeks have not been good given that the shilling had depreciated against the dollar in the period.
However, during the discussion, other panelists including Mr David Bagambe, a senior trader at Diamond Trust Bank, Mr Philip Ssail from Standard Chartered and Mr Julius Kateera, the head of treasury at dfcu Bank, said the country is expected to experience a volatile foreign exchange market next year ahead of the 2021 elections.
“We expect volatilities in the foreign exchange market in 2020 as we lead into an election period. We could see a lot of volatility in the market,” they said, expressing fears over Uganda’s large current account deficit, which also poses risks to the depreciation of the shilling.
Mr Mbowa said Uganda has had a long history of large current account deficit over the years, which in some cases has been financed by the surplus in the capital account. But noted it is not clear whether government will continue to have a surplus in the capital account.
The meeting also discussed the issue of interest rates, which a number of panelists agreed have remained stable since the beginning of the year amid continued reduction in the Central Bank Rate.