THE Uganda shilling lost more ground against the US dollar in the local foreign exchange market yesterday, trading at its lowest in seven months. The shilling opened at 2,005/2,020 for buying and selling against the dollar, up from 1,978/1,990 last week.
Dealers attributed the shillingâ€™s depreciation to lack of liquidity amidst the waning of dollar inflows into the country. â€œThe dollarâ€™s dramatic gain against the major traded currencies has caused panic and confusion in the market.
â€œRight now the market is sluggish because players are speculating,â€ said one dealer at Stanhope Forex Bureau in Kampala.
With a sh50 loss in just three days, the local unit is in a free fall. Corporate dollar buyers were reportedly in the market last week.
â€œThe market is quiet after Fridayâ€™s rally of the dollar. I see the shilling weakening in the days ahead as demand from the corporate clients comes through,â€ said Faisal Bukenya, the head of market making at Barclays Bank Uganda.
The shilling is expected to trade within a 2,010-2,030 range in the coming days.
â€œIf the Central Bank does not intervene, the shilling is set to weaken further.
â€œDue to the uncertainty, we donâ€™t expect much activity from the corporates,â€ Stanbic Bank said in a market report.
The shilling hit a seven-month low on Friday undermined by dollar buying by commercial banks. It breached the 2,000 resistance level which resulted in more buying of dollars in a market characterised by short dollar positions.
Meanwhile, the Kenyan shilling neared a seven-month low against the dollar yesterday due to jitters caused by disagreements in the coalition government over the fate of ministers briefly suspended over graft allegations.
The principal partners in the coalition, prime minister Raila Odinga and president Mwai Kibaki disagreed over what to do with two cabinet ministers mentioned adversely in scandals in a maize scheme and education programmes.
Late on Sunday, Kibaki overturned Odingaâ€™s order that education minister Sam Ongeri and his agriculture counterpart William Ruto step aside to allow for further investigations.
â€œWhat is unfolding on the political front is making the market uncertain,â€ said Friday Mwafuga, the head of trading at Co-operative Bank.
At 0751 GMT, commercial banks quoted the shilling at 77.25/35 against the dollar compared with Fridayâ€™s close of 76.90/77.00. It had touched 77.35/45 in early trade.
The local currency is hovering at a level last touched in July, when it closed trade at 77.30 on July 13, and at 77.45 a day later.
Kenyans and donors have long called for leaders in the unity government to act tougher on influential individuals blamed for several graft cases that have hit several key economic sectors.
Graft is often cited as a major impediment for businesses operating in the country, and how to tackle it has soured relations between the coalition governmentâ€™s partners.
â€œBasically I think itâ€™s responding to the ongoing issues on politics and corruption. I think the shilling is on the defence. It might continue to weaken further. 78.00 is a possible target,â€ said Jeremiah Kendagor, the head of foreign exchange at Kenya Commercial Bank.
Ugandan shilling at a seven-month low, as politics hits Kenyan unit