The Uganda shilling has continued its decline against the US dollar, reaching a rate of Shs3927 buying per US dollar and Shs3937 selling on Friday, marking a depreciation of approximately 4.00 percent since the beginning of the year. Absa Bank Uganda has highlighted that the local unit is now only a few shillings away from the significant 3950 level, which markets are closely monitoring.
Ms. Catherine Kijjagulwe, the Head of Trading at Absa Bank Uganda, explained that persistent demand from offshore sources, coupled with clients who had postponed their buying, hoping for a reversal in the trend, has contributed to this slide. While there have been some inflows towards the end of the month, particularly from commodities, they have been overshadowed by strong demand.
Looking forward, Ms. Kijjagulwe cautioned that the Uganda currency is likely to remain volatile and vulnerable. The possibility of the shilling recovering some losses depends on significant inflows before month-end. However, breaching the 3950 level could lead to further decline, possibly reaching the 4000 mark. Overall, trading ranges are expected to fluctuate between 3870 to 3970 levels in the near term.
In a weekly analysis, Ms. Kijjagulwe highlighted tight liquidity conditions in the Money Markets due to mid-month tax remittances by clients. Overnight yields ranged between 10.00 percent to 11.50 percent during the week. Additionally, the Bank of Uganda held Treasury Bond auctions, clearing at averages of 14.60% for 5-year bonds and 16.30% for 15-year bonds. Another Treasury Bill auction is scheduled for Wednesday, February 28th, 2024.
Despite the current depreciation, Uganda’s foreign exchange market remains relatively stable compared to other markets in the East African region. This stability offers some reassurance amid the ongoing challenges.
