The Independent (Kampala)

25 March 2012

Uganda: Shilling Continues Slide Against Dollar

The slide of the local currency against the US dollar continued the trend on Monday, March 19, closing at an interbank exchange of Shs2,479/2,489 compared to the previous week's close of 2,463/2,473. This pressure on the local market was widely expected with offshore players keen on risk reduction in emerging markets coupled with corporate demand from energy and telecommunication sub-sectors.

Analysts are expecting no respite for the shilling with the onset of the dividends period by multinationals and with no significant inflows coming into the market from exports. Additionally, the Central Bank is keen to boost its reserves. Also, the market remains jittery with a Central Bank auction due on March 21 of Shs 40 bn and Shs 60 bn at a low interest rates and hence little offshore investor participation expected.

Having recovered from the festive season slump of Shs2,485/2496 on January 2, the shilling rebounded strongly to record on a 2012 low of Shs 2,304/2,314 on February 9. However, the green back has continued to gain throughout February and edged the shilling at Shs 2,367/2,372 by March 1. It has not looked back since then and forced the shilling to lose about 5% of its value by March 19.

The beleaguered shilling slumped to its all-time record low of Shs 2,901 against the dollar in September 2011, prompting the Central Bank to take tightening measures in the last quarter of the year that included setting a record central bank rate in an effort to mop up excess liquidity. The BoU has cut the rate by two percentage points since December citing a positive developments in the market that saw inflation drop to 25.7 % in January.

Barack Obatsa, the African Alliance East African Senior Portfolio Manager, suggested that the shilling will remain vulnerable in the medium term until it probably hits an equilibrium exchange rate of about Shs 2,600/2,700 later in the year.

The slide of the local currency against the US dollar continued the trend on Monday, March 19, closing at an interbank exchange of Shs2,479/2,489 compared to the previous week's close of 2,463/2,473. This pressure on the local market was widely expected with offshore players keen on risk reduction in emerging markets coupled with corporate demand from energy and telecommunication sub-sectors.

Analysts are expecting no respite for the shilling with the onset of the dividends period by multinationals and with no significant inflows coming into the market from exports. Additionally, the Central Bank is keen to boost its reserves. Also, the market remains jittery with a Central Bank auction due on March 21 of Shs 40 bn and Shs 60 bn at a low interest rates and hence little offshore investor participation expected.

Having recovered from the festive season slump of Shs2,485/2496 on January 2, the shilling rebounded strongly to record on a 2012 low of Shs 2,304/2,314 on February 9. However, the green back has continued to gain throughout February and edged the shilling at Shs 2,367/2,372 by March 1. It has not looked back since then and forced the shilling to lose about 5% of its value by March 19.

The beleaguered shilling slumped to its all-time record low of Shs 2,901 against the dollar in September 2011, prompting the Central Bank to take tightening measures in the last quarter of the year that included setting a record central bank rate in an effort to mop up excess liquidity. The BoU has cut the rate by two percentage points since December citing a positive developments in the market that saw inflation drop to 25.7 % in January.

Barack Obatsa, the African Alliance East African Senior Portfolio Manager, suggested that the shilling will remain vulnerable in the medium term until it probably hits an equilibrium exchange rate of about Shs 2,600/2,700 later in the year.

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