Shilling hits lowest level ever

Uganda Shilling notes. The local currency has dropped to an all time low with experts predicting it could go as low as 3000. File photo

What you need to know:

Local unit traded at 2,954 buying and 2,964 selling against the dollar by close of business on Friday.

KAMPALA-The Shilling has weakened to the lowest level on record to trade at 2,954, breaking the resistance level of 2,950 for the first time from the average of 2,870/80 it traded the previous week.

This challenged the power of Bank of Uganda (BoU) when the local currency slightly recovered some losses but bounced back to trade higher soon after the Thursday intervention.

Experts attribute the sharp decline to a seasonal surge in demand (for dollars) ahead of corporate dividend declarations as the interbank positions itself to sell forex.

Strong dollar
Bank of Uganda director of research Adam Mugume in an interview last Friday said: “The main reasons for the shilling fall are the strengthening of the dollar and the strong domestic demand, in part reflecting the depreciation pressures”.
As expected, the Shilling ha
s continued to be affected by the developments in the global financial markets.
This reflects the strengthening of the dollar against other international currencies.

For instance, as of Thursday, the dollar’s trade against the euro was around 1.1 down from 1.39 it was around the same time 12 months ago and against the Pound, around 1.52 compared with 1.72 12 months ago.

“In a short-term when the trend of a currency is one way, on depreciation side, there is a tendency for private sector to hold foreign currency in anticipation of further depreciation,” Mugume observed.

He warned the private sector that this could in turn hurt them when the currency gains strengthen.

He, however, said there is also genuine strong demand for forex by importers amidst low foreign exchange inflows.


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