14 October 2012

Uganda: Shilling Drops Against U.S Dollar

The Uganda shilling continued to drop in the week ending Oct. 12 against the US dollar. The unit dropped by 1.5% touching 2605/15 from the 2565/75 previous week close.

The continued drop continues to scare importers about the effect the depreciation will have on their profit levels once goods become expensive to buyers.

The central bank intervened thrice to halt the slide as demand for dollars surged especially from offshore players as well as the consistent corporate demand from the energy sector.

Yields continued to fall with the 5 year paper auctioned on Oct. 10, coming in at 12.2% from 13.9% fetched at the previous sale in August.

Analysts expect the shilling to remain weak in the coming weeks with 2630 level holding the topside and 2575 on the downside. They [analysts] expect the central bank to keep supporting the shilling in case of further drops.

According to Bank of Uganda's monetary policy report for September, the exchange rate depreciated by 0.9% [month on month] but appreciated by 10.6% [year-on-year] to an average of Sh 2, 541.

The report says the rate was stable at the beginning of the month but demand from oil, manufacturing and offshore increased towards the end of the month leading to strong depreciation pressures.

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