Low demand for dollars shields shilling from weakening

The shilling has been shielded from weakening because of low demand from importers, high yield on government securities and the central bank monetary policy actions, according to market players.

The shilling has remained stable amid devastating effects brought about by Covid-19.

The unit, according to analysts, has also benefited from inflows from non-governmental organisations and Covid-19 related support from the international community.

In June, the shilling strengthened against the dollar by about 1.4 per cent, mainly due to low demand from importers, corporate sector and manufacturers.

Inflows, especially from coffee earnings, also contributed with the unit going for an average mid-rate of Shs3,738 compared to Shs3,791.46 in May.

However, the shilling traded weaker against both the Euro and the Pound Sterling, registering a decline of 1.8 per cent and 0.4 per cent, respectively.

The unit closed the week at Shs3,664.94 on the buying side and Shs3,674.96 on the selling side.
Dr Adam Mugume, the Bank of Uganda executive director for research, told Daily Monitor last week that “exchange rate stability with bias towards appreciation has largely been due to measures undertaken by the Central Bank to stabilise the market when the foreign exchange market experienced volatility.

“Attractive yields on government securities combined with stable macroeconomic outlook have attracted portfolio inflows,” he said.
Mr Charles Katongole, the Standard Chartered Bank head of financial markets, said the shilling had gained in the recent past due to the fact that offshore investors had been active in Uganda’s financial market.
“Whenever there is a bond issuance, investors come in. Lately, there was a 15-year bond and they came quite heavily. They lowered interest rate in their countries yet in the [local market] they are higher than what is in their [offshore investors] countries,” he said.