The Uganda shilling traded flat against the dollar during the week in a market characterized by thin demand.
Supply levels slightly improved and were mostly from NGO's end-of-month flows. The forex market has shown very little reaction if at all to the inflation print. ?As the markets await the MPC CBR decision next week, of which the markets expect no change in the tone and the main points of the language of the statement given that similar challenges still remain, indications point to a relatively stable market with the shilling trading at the current levels of 2,660/2,680, with a technical support level of 2650.
It is expected that BoU is likely to intervene to manage the depreciation pressures as well as balancing liquidity levels in the system. The pace of depreciation, however, is expected to be slower than what the markets experienced in the last couple of months.
Inflation seems to have bottomed out and is hovering around the Bank of Uganda's target of 5%. Low inflation coupled with low and stable interest rates are likely to have a positive effect on consumer and private investment spending as we go forward. The issue the policymakers face is how to address the growth challenge.
BoU is likely to continue easing but at a more calculated pace, with a slight cut of 50bps a possibility. There is also room to reduce the 300bps CBR corridor as well.
Stephen Kaboyo is the Managing Director of Alpha Capital Partners.