Experts have warned that the Uganda shilling will continue to depreciate against the US dollar amid a gloomy economic outlook.
The shilling has lost almost 9% of its value since the beginning of the year and this week, it briefly touched the 3,900 level against the dollar despite sustained intervention into the market by the Bank of Uganda by selling dollars or buying out excess liquidity.
The Head of Trading Absa Bank Uganda, Catherine Kijjagulwe said: “The shilling is likely to continue buoying within the 3800-3900 trading range unless healthy flows come through to cover the continued demand.”
Stephen Kaboyo, Founder and Managing Director Alpha Capital Partners, says the shilling will continue to hit air pockets and will remain highly susceptible to swings in global investor sentiment while on the domestic front uncertainty swirling around the gloomy economic outlook will also be key in shaping the market trend.
Kijjagulwe attributes the slowdown of depreciation over the last one month to the reduced demand in dollars in the country as markets stay in a wait-and-see situation ahead of the general election this month.
“The Kenya shilling remained weak as customers try to meet their pending commitments as elections draw near. The unit continues to trade within the 119.00-125.00 trading range and is anticipated to remain weak as the dollar supply remains thin,” she says.
According to Bank of Uganda, the shilling is expected to continue depreciating mainly due to global developments and weak balance of payment position.
The executive director Uganda Manufacturer s Association (UMA), Mr Daniel Birungi says that when it comes to the shilling losing value, the problem is largely macro- in nature and is determined by a number of factors; case in point is our dependency of imports, the constantly varying interest rates and risk aversion among investors among others.
He however, quickly notes that to ensure that the money gains value, first reduce importation of items especially for sectors where the country has developed capacity to produce finished items and in sufficient quantities.
“This would greatly reduce the import bill and have some control on the shilling value. We championed the Buy Uganda Build Uganda (BUBU) policy to increase the market for our locally-made products,” Mr Birungi said.
As the US fights the highest inflation rate in decades, the expected rise in the interest rates is also forcing holders of the dollar to retain it until the outlook of the market is more certain.