Don’t panic over the shilling - Bank Of Uganda

[Da Dona]

The Bank of Uganda (BoU) has urged Ugandans not to panic over the continued depreciation of the shilling, which has fallen beyond the Shs4,000 mark against the US dollar.

Commercial banks are currently quoting the dollar at around Shs4,038 to Shs4,048, putting additional pressure on importers and businesses that rely on foreign currency.

BoU officials say the recent weakening of the shilling is being driven by several factors, including global financial conditions, changes in interest rates, capital flows, higher oil prices and increased domestic demand for dollars.
BoU officials also pointed to increased demand for foreign currency from sectors such as manufacturing, telecommunications and energy, while the stronger US dollar globally has added to the pressure.

The shilling has weakened from an average of about Shs3,709 per dollar in July to more than Shs4,000 in October. The depreciation has increased the cost of imported goods and other products whose prices are linked to the dollar.
For example, an importer who needs $5,000 now requires about Shs20.24 million, compared with approximately Shs17.7 million in February.

The pressure is also being felt in the fuel market. Petrol prices in Kampala have risen to around Shs6,950 per litre, with some stations charging more than Shs7,000.

BoU has responded by raising the cash reserve requirement for commercial banks to 13.5 percent while maintaining the Central Bank Rate at 9.75 percent.

However, economists say monetary measures alone may not be enough to address the underlying pressure on the shilling. They have called for increased exports, value addition, manufacturing, tourism and import substitution to reduce Uganda's dependence on imported goods.

BoU maintains that the exchange rate is market-determined and says its interventions are aimed at limiting excessive volatility rather than defending a particular exchange rate. The central bank expects the shilling to recover some of its recent losses as some of the current pressures ease.

By Daily Monitor​