Uganda: Quarter 2 - Ugandan Shilling Strengthens Against the Dollar

4 July 2023
The Independent (Kampala)

Kampala, Uganda — Quarterly Review of the Performance of Uganda's Financial Markets, with Catherine Kijjagulwe, Head of Trading at Absa Bank Uganda.

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QUESTION: How did the shilling open the second quarter of the year?

The shilling opened the second quarter of the year (April 2023) trading at the 3770/3780 levels with a spillover of some dollar demand from March to fulfil dividends requirements.

QN: What were the trends in the shilling's performance throughout the second quarter of the year and which factors drove these trends?

During the second quarter, the shilling strengthened against the dollar to close the month of June 2023 at the 3665/3675 levels having briefly touched highs of 3650/3660 during June 2023. Healthy inflows were seen during the quarter from the commodity export sectors (tea, coffee), NGOs and also some remittance flows. Corporate demand was limited and outmatched during June 2023 as Businesses remitted their end of Financial year taxes.

QN: How is the shilling fairing as we end Q2?

The shilling closed the quarter on a strong footing at the 3665/3675 levels in comparison to the previous quarter's close of 3770/3780 (2.79% appreciation quarter against quarter).

QN:How will this affect people and businesses?

Dollar sellers would get fewer shillings for their dollars due to the lower exchange rates, while dollar buyers would require fewer shillings for their dollar purchases and would find current rates fairly favourable. Since we heavily rely on imports the favourable dollar rates would eventually filter into slightly lower cost of consumer goods and services for the consumers.

QN: How do you project the shilling will perform in the coming months?

Inflows are still likely to remain healthy from commodity exporters, NGOs and remittance flows. Also, if offshores come back to reinvest in government securities, the market may see some of these flows. On the other hand, with the end of the Financial year taxes waning, demand is also likely to pick up as we head into the new financial year. The unit is anticipated to buoy within the 3575 - 3775 levels during the coming months.

QN: Were there any regulatory or monetary policy developments registered this quarter? If any, which are they and what are their implications?

The Monetary Policy Committee left the Central Bank Rate unchanged at 10% during the meeting held on 13th June 2023. Despite easing inflation pressures, they cited uncertainty and risks in the global economy. Uganda's headline inflation eased to 4.9% in June 2023 from previous highs of 10.7% in October 2022 with drops in food, energy, fuel and utility prices. The marginally lower inflation signals slightly lower costs in transport and goods for the population but with the continued global uncertainty there are still possible risks of high inflation in the coming months.

Read the original article on Independent (Kampala).

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