Dorothy Nakaweesi
27 October 2009
Importers are making merry over the current strength of the Shilling, saying it will boost their purchasing power. But the situation is leaving exporters in a tight corner as they anticipate lower demand for their exports.
Since last week, the shilling has continued to appreciate against the US dollar, opening yesterday's trading at its strongest levels this year with mild activity in the market. The shilling was trading at Shs1860/90 against the US dollar.
A spokesperson for Kampala City Traders' Association, Mr Issa Sekitto, said: "If this trend of the appreciating local currency continues, it means we shall see a reduction in the taxes we pay. As we approach the festive season, consumers will be able to afford the goods because they will be fairly priced."
However, this trend is not a blessing to Uganda's export sector which is going to find doing business more expensive especially during the global recession as many have lost their markets.
Mr Denis Mushabe Mushanyu, a foreign exchange trader at Standard Chartered Bank, attributes the strength of the local unit to increasing risk appetite of offshore investors as they hunt for high yields plus sizeable flows from aid agencies, especially the UN sister organisations.
"We expect the shilling to offer mixed trade against the dollar as we approach the end of the month. Interest rates are expected to hold at the current levels which might force yields on bonds and bills to dip," he said.
Mr Mushanyu added that they expect the shilling to continue its strength, trading reaching Shs1850/1890 at the end of this week.
Bank of Uganda attributes the strengthening of the shilling to strong inflows from agricultural exports, NGOs and rebound of offshore investors' activities.
The Acting Director of Communication, Bank of Uganda, Ms Joy Kahwa said: "The demand for the dollar has been slightly moderate and generally it has been weakening against all major currencies".
However forex bureau dealers who talked to Daily Monitor attribute the strength of the local currency to less demand of the dollar in the market; saying this is a result of MTN Uganda's recent application and securing a $100 million (Shs189 billion) syndicate loan for its network expansion.
The credit facility, whose lead arranger was Absa Capital, the investment banking division of Absa Bank, also attracted interest from 10 local banks.
Ms Kahwa, however, said the Central Bank doesn't agree with the dealers' analysis.
Because of the global economic turbulences, the shillings lost its strength against the dollar, trading its lowest at Shs2,300/2,200 a position it last traded about five years ago.
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