Dollar depreciates and expected to remain low a little bit longer

The Bank of Uganda placed the formal exchange rate for the dollar at 3,529.39 buying and 3,539.39 selling by the end of yesterday. This was moderately solid for the local currency from the start of the day when the central bank quoted it at  3,530.22 buying and 3,540.22 selling. 

Walking around the forex bureaus of Kampala showed that the Dollar had by mid-day dropped further against the Shilling with some quoting it at 3,538. This further piles worry to those that are presently holding Dollars. This leaves them with a decision on whether to release them or hold them up until again when their value rises.

The Uganda Shilling has been bettering for almost a year now although there was a sharp rise in the rate since January this year. Approximately a year back, the US Dollar was referenced at 3,749 against the Shilling. This is a distinction of more than 200 Shillings currently.           

The Bank of Uganda also explains there was a surge of inflows of the Dollar by investors in the energy and telecommunications sector. This was the case as well as from offshore investors and donors to civil society. BOU says it only comes in to “mop up excess liquidity” from the economy. This is done by either by selling or buying out a currency. 

There has also been an increase in the inflow of Dollars though the sustained borrowing. External borrowing is estimated at about 1.9 trillion Shillings between July 2020 and June 2021 by the Ministry of Finance.  

In the aftermath of the loss of the Dollar and other currencies to the Uganda Shilling, it has affected Ugandan investments abroad. This includes among others the National Social Security Fund’s (NSSF) investments. According to their latest Transparency Statement, the NSSF says more than 200 billion Shillings in income was lost in the nine months ending February in the process of currency conversion. NSSF has investments in companies in Uganda, Kenya, Rwanda and Tanzania.

One year back the Kenya Shilling traded at 35.6 to the local currency and has since lost to steam to trade at 32.9 currently. Kenya’s currency strengthened to a nine-month high against the dollar boosted by inflows from the IMF and foreign investors chasing yields from a tax-free infrastructure bond auctioned last week. 

According to Bloomberg, the Kenya Shilling gained its nine-month high against the US Dollar to 106.91 on Monday. Experts are further anticipating further strengthening. This has helped the Kenyan currency remain within a short distance of the Ugandan Shilling, which has also been boosted by the low demand for the dollar.  Generally, the Dollar has been flat against most currencies, with very slight variations, which results from external factors. 

Some of the factors that have destabilized the dollar include declining cases of COVID-19 majorly in Asia. These translate into recovery of economic activities in these countries which frustrates the recovery of the dollar. Internally, the dollar’s weakness has been accredited to the low yield of bonds in the US. This results from majority investors opting to invest in the government treasuries rather than investing in stocks.

The U.S. Dollar has been tipped to remain weak by experts and this might go up to June. They also suggested that it will need support from yields to turn this weakness around. However other currencies such as the British Pound have remained in stronger positions against the shilling this year. The rate went up to 5,075.86 in March, before going to 4,971.75 presently.

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