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BoU banks on oil, mining inflows for stable shilling
Bank of Uganda Deputy Governor Michael Atingi-Ego
What you need to know:
- Dr Atingi-Ego also indicated that whereas inflation had decelerated in the last few months, it is expected to increase but will remain below the 5 percent Bank of Uganda target.
Bank of Uganda has said increased capital inflows in mining and oil are expected to continue supporting the shilling, which has held a steady position for the better part of 2024.
The shilling closed last Friday at Shs3,673.18 against the dollar, which is a strong improvement from a weak of above Shs3,800 in February.
Bank of Uganda Deputy Governor Michael Atingi-Ego, said the local unit has remained stable during the year largely due to previous monetary policy actions, supported by a decline in food crop prices and deflating global inflationary pressures.
“Looking ahead, Uganda’s positive economic prospects, strengthened by capital inflows in mining and oil, could continue supporting the shilling. [And] favourable food and oil prices and decreasing global inflation, [will] keep inflation low,” he said.
The shilling has remained largely stable, amid weakening regional currencies buffeted by scarcity in dollar inflows, especially in Kenya, which struggled to buoy a largely weak currency in the first half of the year, and Tanzania, which is currently struggling with a rapidly weakening unit.
The stability in the foreign exchange market, therefore, Bank of Uganda said in its monetary policy report, had been a key consideration in maintaining the December Central Bank Rate at 9.75 percent.
Dr Atingi-Ego also indicated that whereas inflation had decelerated in the last few months, it is expected to increase but will remain below the 5 percent Bank of Uganda target.
For instance, he said inflation will rise to an average of 3.7 percent in the period to June 2025 and rise further to 4.2 percent in June 2026 due to global inflationary pressures that remain heightened in some countries, geopolitical tensions and potential trade disruption.
Dr Atingi-Ego also said economic activity remains strong, with indicators suggesting sustained strengthening due to resilient domestic expenditure, which will therefore, see the economy grow at between 6 and 6.5 percent in by June 2025 and 7 percent 7.5 percent over the medium term, supported by government interventions, increased foreign direct investment in the extractive industry, and commencement of oil production.
