19 November 2012

Ugandan Shilling Falling Further

Forex experts have expressed worries about the continued depreciation of the Uganda shilling against foreign currencies especially the US dollar, saying that would lead to a spike in the cost of doing business and slowdown economic growth.

Denis Mashanyu, a forex trader at Standard Chartered Bank said in a statement dated Nov. 16 that the local unit continued to depreciate against the US dollar in the week ending Nov. 16 closing at 2610/15 compared to the previous close of 2600/10.

He said the market remained well bid with sizeable demand from the energy sub-sector and that treasuries saw a small move of 15 basis points at the midweek auction with rates unchanged across the curve.

Other analysts say the shilling has depreciated due to the strong demand for dollars from importers rushing to stock goods for holiday shoppers and offshore investors closing their local currency positions ahead of the end of the year.

The shilling has lost 5.1% against the dollar so far this year, its value partly eroded by the central bank's lowering of interest rates to prop up sagging economic growth.

This month Bank of Uganda (BoU) cut its key lending rate by 50 basis points to 12.5% from October's 13%, slowing down the rate of its policy easing, a move analysts say might offer the shilling support in the medium term.

"Next week we expect the shilling to remain well bid trading in the 2600-30 range," said Mashanyu, adding interest rates should be flat as activity in the debt market is subdued with no strong interest from investors.

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