Increased demand for the US dollar from key domestic sectors-including energy, manufacturing, and telecommunications-has helped the Uganda Shilling close the week ending July 31 on a firm footing, rebounding from a sharp depreciation experienced the previous week.
Foreign exchange market analysts attribute the local currency’s improved stability to healthy dollar inflows from commodity exporters, non-profit organizations, and overseas remittances.
Market stability is vital for Uganda’s economic outlook, as a steady exchange rate prevents wild price swings and supports policy makers at the Bank of Uganda (BoU) in maintaining overall inflation control.
Speaking on the market performance, Mr. Richard Nsubuga, the Acting Head of Trading at Absa Bank Uganda’s CIB Markets, noted that the local unit posted steady gains over the week.
“The shilling was seen trading relatively stronger at 3,745 / 3,755 levels on Friday morning compared to the week’s opening levels of 3,770 / 3,780,” Mr. Nsubuga said.
Despite the recent recovery, analysts caution that the currency remains exposed to broader risks. Mr. Nsubuga noted that the shilling’s vulnerability is expected to hinge on ongoing corporate dividend demand and heightened Middle East geopolitical tensions, with a projected trading range of 3,650 to 3,820 in the near term.
Further insights from Absa Bank Uganda reveal that the local money market remained heavily liquid during the week, with overnight and one-week interbank rates averaging between 6.75% and 10.00%.
To keep excess liquidity in check, the Bank of Uganda actively intervened through its Open Market Operations (OMO), mopping up Shs667 billion from the market.
Meanwhile, government debt instruments saw increased investor appetite during Wednesday’s Treasury bond auction, causing yields to drop across the curve:
2028 Bond: Cleared at 12.50% (down 30 bps)
2032 Bond: Cleared at 14.25% (down 45 bps)
2039 Bond: Cleared at 15.65% (down 10 bps)
2050 Bond: Cleared at 16.00% (down 29 bps)
According to Mr. Nsubuga, the government offered a total face value of Shs1.4 trillion and accepted Shs1.36 trillion, bringing in Shs1.45 trillion in total cash proceeds.
The central bank routinely issues treasury bills and bonds on behalf of the government to raise domestic capital for fiscal spending and public expenditure financing.