The Ugandan shilling has continued to depreciate against the dollar. On Wednesday, forex bureaus were quoting a dollar at Ugx2823 buying and Ugx2843 selling.
On Monday, it breached the Ugx2800 mark for the first time since 2011. Such levels have not been seen at least since 2011 when traders quoted it as high as Ugx2900, which pushed up commodity prices.
Traders had at the start of the week warned that if the trading goes beyond Ugx2800, it could send the market into “a panic spin.”
That appears to have been the case in the last three days. Stephen Kaboyo of Alpha Capital Partners noted the “sharp depreciation is underpinned by anxiety, market players scrambling to buy, not sure of where the currency will be the next day.”
He added that, the major concern is the inflationary pressures that will emerge. He said this could push up prices of imported goods, which dominate the market.
The dollar appreciation against Uganda Shilling has been attributed to external factors by both the Central Bank and those trading in currencies.
Reuters and Bloomberg have been report how the Dollar has been strengthening against all currencies around the world, the shilling inclusive.
A trader who declined to be named said negative sentiments arising from the strengthening of the US dollar in the international currency markets and the falling commodity prices particularly oil is also weighing down the shilling.
Dr Adam Mugume, Director Research at BOU had on 13th December 2014 admitted how the Uganda Shilling had depreciated by almost 10% in 2014. He also said the depreciation was a correction and that the Shilling was finding its level.
Occasionally, BOU intervenes in the market by pumping by buying Uganda Shillings from the market to prop it up. There had been projections from commercial bank forex departments that BOU would intervene this week, but this has not happened.
Kaboyo explains that “BOU is not keen to intervene because the fundamentals do not support a strong shilling.” He notes that a sharp rise in imports since October 2014 has weighed heavily on the current account deficit, which means that imports are growing faster than exports.
BOU has reserves of about US$3bn, which it can use to intervene in the market. A statement from the BOU communication department issued this morning says, whereas the US dollar continues to strengthen globally and local demand for dollars with the resumption of business continues to pick up after the festive season, BOU has noted some speculative tendencies that have exacerbated the depreciation of the Uganda shilling.
BOU has promised to take measures to tame the depreciation arising from the speculative tendencies