Macrines Nyapendi
20 October 2008
Kampala — The American dollar has made a dramatic gain of over sh100 against the Uganda shilling in the local foreign exchange market.
When trading opened yesterday, the shilling was buying at sh1,795 and selling at sh1,800 against the dollar.
But by the close of the day, the shilling was posted at 1,820 for buying and 1,900 for selling. The shilling last traded at this point early last year.
Foreign exchange dealers around town attributed the dollar's appreciation to increased demand from corporate buyers and local importers and the dollars improved performance on the international scene.
"The dollar has internationally gained against other currencies. I think these gains have prompted the huge demand from the corporate and importers. The demand is, however, not backed up by supply," said Akash Kumar, the general manager of Midland forex.
Steven Mwanje, the chairperson of the Uganda Forex Bureau Association, said: "I don't know what to say because this is madness I have never witnessed."
He added that the central bank's laxity to intervene was to blame for what he called a crazy situation.
A continued shilling depreciation cannot be ruled out if the demand for the dollar is not backed up by supply. A Bank of Uganda official, who preferred anonymity, said the dollar's upward trend was set to continue because the bank did not have the capacity to control the market.
"We believe that the shilling will trade lower in the coming weeks," said the source.
Kumar said both the $700b bailout given by the US government to collapsing banks and the coming in of a new USâ-àpresident had given confidence to investors globally.
He, however, said the current trend on the Ugandan market was disastrous to the economy.
"With this kind of situation, planning and everything goes into jeopardy. Uganda is a landlocked country, situations like this could make basic commodity prices volatile," he said.
Kumar said when the shilling depreciated by sh20, it sparked off panic buying from the corporate companies, and dealers started speculating.
A weak shilling hurts the import sector and boosts the export sector.
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