Uganda shilling strengthens against the dollar promising low costs on consumer goods

The Independent interviewed Catherine Kijjagulwe, Head of Trading at Absa Bank Uganda concerning the Quarterly Review of the Performance of Uganda’s Financial Markets.

According to Kijjagulwe, the shilling opened the second quarter of the year (April 2023) trading at the 3770/3780 levels. These levels dwindled through the second quarter until they hit 3665/3675 by the end of June 2023. This was after they touched the 3650/3660 levels during June.

Overall, the shilling closed the quarter on a strong footing with a 2.79% appreciation quarter against quarter.

Describing the trends in the shilling’s performance and the factors that drove them, Kijjagulwe said, "Healthy inflows were seen during the quarter from the commodity export sectors (tea, coffee), NGOs and also some remittance flows. Corporate demand was limited and outmatched during June 2023 as Businesses remitted their end of Financial year taxes."

Impact of performance on business and people

"Dollar sellers would get fewer shillings for their dollars due to the lower exchange rates," she explains, "while dollar buyers would require fewer shillings for their dollar purchases and would find current rates fairly favourable."

This gives businesses and people a positive outlook since Ugandans "heavily rely on imports the favourable dollar rates would eventually filter into slightly lower costs of consumer goods and services for the consumers."

Performance trajectory

Although the performance at the close of the last financial year is full of promise, "with the end of the Financial year taxes waning, demand is also likely to pick up as we head into the new financial year. The unit is anticipated to buoy within the 3575 - 3775 levels during the coming months."

But for now, she says, "inflows are still likely to remain healthy from commodity exporters, NGOs and remittance flows. Also, if offshores come back to reinvest in government securities, the market may see some of these flows."

Moreover, monetary policy developments in the second quarter have erred on the side of caution despite a reduction in inflation pressure (4.9% in June 2023 from 10.7% in October 2022). In a meeting held on June 13, the Monetary Policy Committee left the Central Bank Rate unchanged at 10%. The Committee cited uncertainty and risks in the global economy.

"The marginally lower inflation signals slightly lower costs in transport and goods for the population but with the continued global uncertainty there are still possible risks of high inflation in the coming months," she mentioned.