The Uganda Shilling concluded the year 2023 on a strong note, exhibiting stability against the US Dollar and outperforming its counterparts in the East African Community (EAC), according to analysts. The currency’s strength fluctuated between 3,767 and 3,815 against the US dollar in the past month, with the Bank of Uganda quoting a rate of 3,803 at midday on Monday.
Last year, the Shilling demonstrated a steady rise against the dollar until August when the World Bank announced a freeze on new loans to Uganda due to concerns over the country’s human rights record.
Michael Atingi-Ego, Deputy Governor of the Bank of Uganda, explained, “Following the pronouncement by the World Bank regarding new financing as a result of the Anti-Homosexuality Act, that they wouldn’t be funding any new loans in Uganda, that had an impact on the exchange rate. We saw the exchange rate depreciating from about 3650 to nearly 3750 in a period of two days.”
Although the depreciation occurred, the rate of appreciation also decreased, and the Shilling has remained relatively stable despite recent depreciation pressures in the quarter to November 2023.
The losses sustained by the Shilling during the quarter were primarily attributed to higher corporate demand, particularly from oil, telecommunication, and manufacturing firms, coupled with continued outflows of portfolio capital. Additionally, “bearish sentiments” regarding anticipated outflows from the proceeds of the Airtel Initial Public Offer (IPO) contributed to the currency’s losses.
In contrast, other currencies in the EAC, such as the Rwandan Franc and Kenyan Shilling, continued to depreciate against the US dollar during the same period. The statement from the Bank of Uganda highlighted that the Rwandan Franc and Kenyan Shilling depreciated against the US dollar by 4.6% and 5.4%, respectively, in the quarter to November 2023.
Comparatively, the Uganda Shilling has lost only 3% of its value against the US dollar, showcasing its resilience. The Kenyan Shilling and Rwandan Franc have experienced more significant losses, with their values dropping by over 48% and 34%, respectively.
The Central Bank of Kenya (CBK) data showed a recent easing of pressure on the Kenyan Shilling, with its weakening pace slowing down as demand for the dollar decreases amidst increased supply.
While the Tanzanian Shilling also experienced depreciation pressures, losing 4.8% against the dollar in the three months to November 2023, the Uganda Shilling remained relatively stable. In real effective terms against major currencies, the Shilling has appreciated, although the rate of appreciation is slowing down. It appreciated by 7.3% year-on-year on average in the three months to October 2023.
The Shilling’s strength is further supported by a fall in the prices of imports, contributing to its robust performance in comparison to regional currencies.
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