Bank of Uganda sells dollars as shilling slumps to record levels

This Ugandan note is worth a paltry 8 US dollars. Is Uganda going the Zimbabwe way?

Uganda’s central bank sold an undisclosed amount of U.S. dollars to help the shilling rally against the greenback in the final minutes of trading on Friday, after the local currency sunk to another record low. The Uganda shilling firmed to a settled price of 2,780 against the dollar at the market’s close, having touched an intraday low of 2827.9, Thomson Reuters data showed. 

Market traders confirmed the central Bank of Uganda had sold dollars but were not able to say how many. “The shilling is expected to hover around 2,800 which remains the key psychological level unless we get a sudden huge demand from one of the key sectors which could drive us back to today’s low levels,” said Lucas Ochieng, head of Treasury at Orient Bank.  

Dollar demand from the oil sector had helped drive the shilling south earlier in the day.     “The oil sector came in and bought a huge amount of money dollars, possibly upwards of $10 million, and interbank demand is also still high, so the shilling is under a lot of pressure now,” said Faisal Bukenya, head of market making at Barclays Bank Uganda. He said uncertainties in the global economic environment were also adding to the shilling’s woes and that the central bank, Bank of Uganda, was likely to inject dollars in the market to relieve pressure on the supply side.  

“We are witnessing a period where capital is being eaten into by foreign exchange hikes. Bank of Uganda has this week not yet intervened though market players are patiently in high anticipation,” said a market report by Bank of Africa Uganda. Bank of Uganda regularly intervenes in the forex market when the exchange swings widely either way to restore stability. Traders say the local currency is also being undermined by the weakening of the Kenya shilling. Kenya, East Africa’s biggest economy, is Uganda’s key regional trading partner.      

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