Uganda shilling retreats back to 2,700 unfamiliar territory

Tuesday, 9th August, 2011

THE shilling yesterday declined to trade at 2,710/2,745, breaking through its June 30 record low, weighed down by surging interbank and oil sector demand.

The decline was also attributed to the strengthening of the dollar on the international market and the now mounting permanent demand on the local scene. The shilling has dropped by 14% this year.

“People who were holding buying positions have started unwinding. That is why the dollar gained against the shilling. The other issue that is affecting the shilling’s performance is reduced supply of dollars,” explained one trader.

By close of business last week, the shilling had depreciated by 0.9% in the local currency market.

The newly-independent South Sudan Central Bank is mopping out dollars to build its reserves.

South Sudan has been one of the major source of dollars to the Ugandan foreign exchange market. The shilling opened the trading session at 2,680/2,700 against the dollar, down from last week’s close of 2,675/2,695.

However, by 3:00pm, it fell to 2,710/2,745 for buying and selling against the dollar.

In June, the shilling depreciated to its lowest level in history to trade at 2,735/2,750, but was rolled back to the 2,400 levels by the Central Bank’s massive intervention.

“There is renewed pressure on the shillings stability because of a cocktail of reasons. The rising inflation, poor performance of the export sector and debt fears in the Eurozone have frozen donor funding,” Shamir Manji, a forex trade, noted.

He pointed out that the Central Bank’s intervention only helps to slow down the rate at which the shilling is losing value, but cannot be a solution to its depreciation.

By Macrines Nyapendi: The New Vision Newspaper