The Uganda shilling experienced a 5.1% depreciation against the US dollar in the fiscal year 2022/23, as revealed by the Bank of Uganda’s annual report for that period. The exchange rate averaged Shs3,752.47 per US dollar, compared to Shs3,571.78 in the previous fiscal year. The central bank attributed this depreciation to various global factors, including the adoption of hawkish monetary policies by advanced economies to combat inflationary pressures.
Deputy Bank of Uganda governor, Dr. Michael Atingi-Ego, explained that the depreciation was influenced by factors like the Russia-Ukraine conflict, which created uncertainty, supply chain disruptions leading to increased commodity prices, and tight global financial conditions that caused portfolio investors to exit the domestic debt market.
The report indicated that the Uganda shilling depreciated by 8.4% year-on-year in both August and September 2022, with monthly average rates of Shs3,832.38 and Shs3,825.59, respectively. The central bank stated that the rate of depreciation was curbed by a contractionary monetary policy stance and tight liquidity conditions in the money markets due to increased cash reserve requirements.
Despite the depreciation trend, the central bank reported that the shilling received some support from rising export revenues, more favorable terms of trade, and lower debt service payments. Additionally, the nominal effective exchange rate depreciated by 1.6% year-on-year, indicating a weakening of the Uganda shilling against a basket of currencies of the country’s trading partners and key global economies.
During the review period, the Bank of Uganda purchased a net amount of $186.05 million from the Interbank Foreign Exchange Market (IFEM). Of this amount, $216.05 million was purchased for reserve build-up, while $30 million was used for market intervention.
