Shilling drops despite BOU intervention 

CURRENCY

KAMPALA - The local currency was under tremendous pressure as the market swung into a panic mode, driven by the uncertainty over the potential economic fallout of the Corona pandemic.

The shilling dropped to a record level, past the key level of sh3,800 and is headed for sh3,900, according to experts. "In the coming days, the shilling will continue to crumble as the virus-driven volatility hangs over the markets.

The dollar strength will continue to aggravate the sell-off as the shilling is expected to test new levels of 3,900," Stephen Kaboyo, the Alpha Capital Partners chief executive officer, said. During the week, the Bank of  In the bond market, the three-year bond traded at 15.750%, while the 10-year attracted a yield of 16%.

Catherine Kijjaggulwe, the Absa Bank head of trading, pointed out that the shilling is taking a hit as offshore investors are fleeing frontier and emerging markets, such as Uganda, for safe havens like the UK and US.

Furthermore, there is heightened dollar demand from interbank players and panic buys from corporate clients who have now realised that the local unit is likely to remain weak in the short term.

The shilling sharply depreciated from the week's opening levels of 3710/3720 to touch 3,824/3,834 on shilling were in a free fall as market players were seen building long dollar positions and scooping whatever that imports are getting more expensive.

In the regional currency markets, the unfolding real-time effect of the dollar shortage continued to hurt the currencies.

The Kenya and Tanzania supply was available in the market. Globally, policymakers continued their efforts to defend currencies against the onslaught of the dollar, which scaled a three-year high.

A global stampede for the dollar funding drove currencies across the world to multiyear record lows against the greenback. Some relief came after the US Federal Reserve opened $450b swap lines to several central banks, but the pressure broadly remained.

Global markets are selling off assets as governments around the world roll out their respective responses to the coronavirus outbreak, with investors realising that strict and unprecedented containment measures are likely to trigger a deep, and potentially longlasting, global recession. The Federal Reserve cut interest rates to essentially zero and launched a massive $700b quantitative easing programme to shelter the economy from the effects of the virus.

The new Fed Funds rate, used as a benchmark, both for short-term lending for financial institutions and as a peg to many consumer rates, will now be targeted at 0% to 0.25%, down from a previous target range of 1% to 1.25%.

Facing highly disrupted financial markets, the Fed also slashed the rate of emergency lending at the discount window for banks by 125 basis points to 0.25% and lengthened the term of loans to 90 days. Friday morning. This is a loss of sh114 for each dollar in less than a week, an indication   

There is heightened dollar demand from interbank players and panic buys from corporate clients who have now realised that the local unit is likely to remain weak in the short term.