- Expected. Experts say that after the long holidays, it was generally expected that demand would surge at market opening and outweigh the supply.
- "What we are worried about is that our prediction is very hypothetical on the sense the economy will entirely depend on how government will behave in a number of areas mainly in paying its debtors,”
Everest Kayondo, chairman Kampala City Traders Association.
Kampala. The Uganda Shilling has continued to depreciate against the United States dollar and other major currencies as demand surges.
By close of business yesterday at the Bank of Uganda (BoU) counter the Shilling was trading at 3,650/3,660 weaker than it opened business in the New Year.
Experts say that after the long holidays, it was generally expected that demand would surge at market opening and outweigh the supply.
Mr Stephen Kaboyo, the lead partner at Alpha Capital, a firm that deals in forex market, sharing his analysis, said: “We have seen that scenario play out most of last week. Demand has been mainly from importers, corporates that are returning to the market to build positions and portfolio investors that are exiting the market because of low yield environment in the fixed income market space.”
In an earlier interview with this newspaper, Dr Fred Muhumuza, an economist and Makerere University lecturer, predicted the Shilling will weaken and this is coming to pass.
He said: “The Shilling will continue being weak as investors shy away due to low demand and inability of government to pull off major projection.”
He said that many people are hanging on oil projects but I don’t see them materialise soon due the pending discussions, designs, and political uncertainty for the investors.
“With no serious investors, we shall continue to import which will also put some amount of pressure on the Shilling,” he added.
Nonetheless, the low demand in the economy and lack of success in big government projects will moderate imports and help the Shilling to depreciate less.
To augment Muhumuza’s predictions, Trading Economics, an online platform that provides historical data, economic forecasts, news, and trading recommendations, says the Ugandan Shilling is expected to trade at 3672.63 by the end of this quarter.
“Looking forward, we estimate it to trade at 3834.78 in 12 months’ time,” the analysts’ expectations showed.
The depreciation of the Shilling means that importers will be spending more to buy dollars and if what is predicted comes to pass doing business will be expensive too.
The chairman Kampala City Traders Association, Mr Everest Kayondo, supplementing on the prediction for the economic performance, said: “If government decides to pay off its debtors we shall definitely see liquidity in society and there will be higher disposable income and aggregate demand in the economy will grow,” he added.
The director research at BoU Dr Adam Mugume, in his review, said that the strengthening of domestic and foreign economic growth rates could result in weakening of the Shilling.
“...stronger domestic economic growth would mean higher imports demand and strengthening of global economy could mean capital outflow to advanced economies,” he said.
Trading of Shilling. The local unit opened in January 2017 trading at 3,580, but gradually depreciated and hit the lowest level of 3,665 in October 2017. The currency crossed a couple of key levels and kept within a wide spread.
Trading against other currencies such as the Pound Sterling and Euro the Shilling lost ground.
Against the Kenyan currency the Shilling closed business at 35.4/35.5 from 35.1/35.2 it traded at the end of last year.