Uganda Shilling has remained relatively stable with a bias towards appreciation in February and March 2021 due to increased inflows of the US dollar in the period under review by the Bank of Uganda (BoU).
In the new monetary policy report of April 2021 yesterday, the BoU says the shilling appreciated by 2.9 per cent year-on-year and 0.1 per cent month-on-month to a mid-rate of Shs3662.9 per a US Dollar in March 2021, compared to an appreciation of 0.3 per cent year-on-year and 0.7 per cent month-on-month in February 2021.
The BoU explains in its report that the appreciation was mainly driven by inflows from Offshores, NGOs, Coffee export receipts and Non-financial institutions amidst demand from Oil, manufacturing and telecom sectors.
On a trade-weighted basis, the nominal effective exchange rate (NEER) appreciated by 2.1 per cent month-on-month and by 3.6 per cent year-on-year in March 2021.
In real terms, the Real Effective Exchange rate (REER) appreciated by 1.6 per cent month-on-month and by 0.8 per cent year-on-year, in February 2021, largely due to a widening inflation differential as depicted in movements in the East African Community (EAC) partner State currencies relative to the US dollar were mixed in the quarter to February 2021.
On average, the BoU says the Tanzania Shilling was stable, slightly depreciating by 0.03 per cent quarter-on-quarter to an average rate of TZS 2,298.5 per a US dollar, while the Kenya Shilling and Rwanda Franc depreciated 0.4 percent and 1.1 percent respectively to an average of KES 109.7 and RWF 976.3 per a US dollar.
On an annual basis, the Kenya Shilling and Rwanda Franc depreciated by 8.5 per cent and 5.1 per cent, respectively in February 2021, while the Tanzania Shilling depreciated slightly by 0.4 percent during the same period.
In the near-term, the exchange rate is expected to depreciate on account of worsening current account deficit and continued strengthening of the US dollar.
During the period under review, the net BoU actions in the interbank foreign exchange market (IFEM) in March 2021, was a purchase of $45.5 million (about Shs162.430 billion), mainly attributed to purchase for reserve build-up.