Overview:
The shilling has retreated from the recent peak of UGX3942 per USD in August 2023 to now below UGX 3,800 with the appreciation momentum peaking up in June 2024 .
The Uganda Shilling has continued to weather the storms despite lingering uncertainty and tight global financial conditions, a new report indicates.
The Uganda Shilling started off the year 2024 on a weak note due to reduced USD inflows as well as push back on the rate cut narrative by the US Federal Reserve.
But the Bank of Uganda State of the Economy Report for June 2024 released on Wednesday shows that the Shilling has broadly maintained relative stability with an appreciation bias.
“The shilling has registered an extended period of appreciation since late March 2023 following the two successive increases in the CBR which lured back offshore investors that were seeking higher returns, especially from the Kenya Euro-bond rollover and the infrastructure bond that offered very high real interest rates and attracted significant inflows of portfolio investment including from Uganda,” Bank of Uganda says.
The shilling has retreated from the recent peak of UGX3942 per USD in August 2023 to now below UGX 3,800 with the appreciation momentum peaking up in June 2024 .
The shilling gained against the US dollar, appreciating by 2.7 percent between March and May 2024, extending the gains in June 2024.
According to the report, the appreciation of the shilling has also been supported by increased inflows from coffee receipts, and Non-Governmental Organizations (NGOs).
“Despite the tight global financial conditions, the shilling has been relatively strong against the US dollar reflecting the tight monetary policy stance supported by relatively improved commodity export revenues,” the report says.
Increased inflows from export revenues, particularly coffee, and inflows from non-governmental organizations (NGOs) more than outweighed the strong demand from domestic corporations, notably manufacturing, energy, and trade, reflecting strong economic activity.
“Notably, the share of the manufacturing sector’s demand for foreign exchange from the domestic market has been significant relative to other sectors and this is consistent with the government’s industrialization agenda targeted at increasing export earnings through value addition as well as supporting the Import Substitution Strategy by producing hitherto imported products,” the report says.