This threat according to the bank is based on rising external finance demands that would put pressure on the shilling.
KAMPALA —The Bank of Uganda has cautioned that rising external finance demands would put pressure on the shilling, which has been relatively stable since the start of the year.
Before December, the shilling had drastically depreciated and was traded for around Shs3,700 per dollar.
On Friday, it began at Shs3,757.42 per dollar and closed at Shs3746.08, based on a recent report from The Monitor Uganda, a Ugandan-based news platform.
The Bank of Uganda failed to specify which funding demands would have an impact on the shilling but has previously stated that debt payments and loan repayment were placing pressure on the unit.
Last week, while giving the Monetary Policy Report for April in Kampala, Bank of Uganda deputy governor Michael Atingi-Ego stated that rising external funding needs are projected to exert pressure on the shilling, perhaps causing it to weaken. The shilling has been volatile compared to the dollar this month, partly due to ongoing capital outflows and debt defaults.
Debt payment has also placed a strain on foreign exchange reserves, which fell to $3.5 billion before rising to $3.7 billion as a result of the Central Bank reserve building.
Notwithstanding the danger, Dr. Atingi-Ego highlighted that the economy had remained resilient and was on course to recover, aided by a better rebound in service and agricultural production.
Nevertheless, he added that quarterly growth for the second quarter of the 2022/23 fiscal year had fallen to 4.4% from 9.2% at the same time of the previous fiscal year due to a decline in industrial production and a slowdown in service output growth.
The Bank of Uganda also promoted that the Central Bank Rate will remain at 10% to promote both moderation in the money supply and economic recovery.
Nevertheless, Dr. Atingi-Ego cautioned that adverse risks to economic growth, such as slower-than-expected growth hurting export demand, higher interest rates, and cost-of-living pressures, although important, might significantly impact household spending and private sector investment.
Other risks, he said, include lower commodity prices affecting primary commodity exports, unfavorable weather conditions affecting agricultural production, the resurgence of supply chain distortions caused by geopolitical tensions, weaker-than-expected global economic growth outturns, or the continuation of much tighter and more volatile global financial conditions.
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