The shilling has come under significant pressure and has shed value against the dollar to trade at 3,591.63/3,601.63 buying and selling respectively at mid-day on 9th March 2017 from 3383.56/3393.56 at the end of September 2016, according to Bank of Uganda (BoU) data.
For every dollar, Ugandans must now fork out an extra sh209 in a space of just six months as the green buck keeps strengthening against the shilling.
Stephen Kaboyo, the Alpha Capital Partners CEO says that the recent shilling depreciation has been due to reduced dollar inflows from commodity exports while on the other hand, corporate demand for the scarce dollar has slightly picked up.
“(This week), the shilling is expected to weaken mildly as corporate demand rebounds coupled with negative sentiment on the comments attributed to senior policy makers (who) paint a pessimistic picture on the state of the economy going forward,” Kaboyo said in a statement.
Economists have predicted tough times ahead with a further weakening of the Uganda shilling this year in response to higher interest rates in the US and an increase in inflation due to the extended dry spell.
While speaking at a Stanbic Economic Outlook Breakfast meeting in Kampala, Jibran Qureishi, the Standard Bank Chief Economist for East Africa said the shilling is expected to trade between 3,850 and 3,900 against the dollar at the end of the year.
He also predicted a rise in headline inflation as a result of reduced food production due to prolonged drought. Bank of Uganda data indicates that growth in Private Sector Credit (PSC) improved somewhat in the quarter to December 2016, growing on average by 5.3%, compared with minus 0.2% in the previous quarter.
Economists at the meeting advised government to institute irrigation programs, and liberalize the pensions sector as this will enable the mobilization of cheap credit to fund vital projects.
In the government securities market, yields on 91 and 182 day treasury bills dropped to 11.962% and 12.545% while the yield on 364 day slightly increased to 13.866%.
In other local economic news, headline inflation for the month of February rose to 6.7% from 5.9% mainly on account on food prices, at the same time core went up to 5.7% from 5.3%.
In the international currency markets, the dollar gained ground against the major currencies as the Federal Reserve Bank gave a strong signal of a rate hike at its March sitting.
Kaboyo noted that the long awaited Trump speech left the markets guessing as it gave no clarity on new administration spending plan.
