What you need to know:
Remedy. Experts suggest that the country should boost its exports and reduce imports
Speculation and low supply of foreign currency, mainly the dollar, explain why the shilling has depreciated by about five points in a few days, financial market players have said.
However, the situation appears to be cooling off without major intervention from Bank of Uganda, implying the panic that saw the shilling depreciate in the last couple of weeks was largely a result of baseless routine market speculation.
Speaking to Daily Monitor yesterday, BM Forex Bureau Ltd director Bintubizibu Mpagi, said it is at a time such as this when speculation is rife that losses can be guarded against, depending on the experience of the dealers.
“Definitely situations like these cause loss, but seasoned dealers ought to know how to guard against losses caused by such baseless panic,” he said.
According to Mr Mpagi, what is happening is not new—low demand of the dollar, impact on the value of shillings and when the demand goes up, the shillings appreciates.
He anticipates that the situation will stabilise by close of the year, particularly around Christmas period.
“Normally as we move towards Christmas the dollar demand gets low and the shilling will gain, so I don’t see the year ending like this—with the shilling taking a beating from the dollar.”
But should the volatility persist as some analysts predict, then the policy planners and implementers will be the biggest losers as they will have to grapple with inflationary shocks which will certainly impact or derail the implementation of Their projects.
In an interview with Daily Monitor yesterday, the Alpha Capital Partners Managing Director, Mr Stephen Kaboyo, said the solution to the shilling’s depreciation lies in the cause of the problem.
He said: “We import more than we export. And this causes the problem we are in—depreciation of the shilling. And the solution to that problem is to export more than we import.”
the status of uganda’s trade in the region and beyond
According to the Ministry of Trade data, earnings from the Common Market for Eastern and Southern Africa bloc decreased from $ 1,490 million (53.0 per cent of total export earnings) in 2012 to $ 1,344 million (47.5 per cent of total export earnings) in 2013. This is an area that Uganda should be taking advantage of so as to strengthen its currency and the economy.
However, the European Union market, the country’s second major export destination, registered an increase in its share of exports from 14.7 per cent in 2012 to 15.6 percent in 2013, an area that should be improved if Uganda is to solve the currency volatility issues.
By close of business on Monday, the shilling was trading at slightly more than 2700/2710 selling and buying while by mid-day yesterday; it was buying and selling at 2,690.5/2,700.5 respectively as the recommended selling and buying prices by Bank of Uganda.
Stanhope Forex Bureau was buying at Shs2,690 and selling at Shs2,715 yesterday morning.