BoU Explains Shilling Fall Against Dollar

Uganda’s exchange rate against the US dollar, In common with those of many other countries around the world, has come under strong pressure in recent weeks.

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This is mainly for two reasons; First the dollar has itself strengthened dramatically on global markets, for example by 13 percent against the Euro since the start of 2015.

Second, in Uganda demand for dollars has increased strongly, mainly from the corporate sector, to fund imports and dividend payments to foreign shareholders following improved corporate profits in 2015.

Unfortunately export earnings have declined mainly because of problems in foreign exchange markets, hence the current account deficit has widened.

The BOU’s policy is not to peg the exchange rate or otherwise prevent it from adjusting to levels which are sustainable in the long run. However, when exchange rate movements are too rapid, the BOU will intervene to dampen volatility.

After a sharp fall in the Shilling in mid morning, the BOU intervened and sold dollars, which restored some stability to the market.

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