Shilling hits all-time low against dollar
Jun 30, 2011
THE shilling has hit an-all-time low of 2,725 as the increasing global demand for the dollar continued. This was weaker than Tuesday’s close of 2,635/2,650.
By Stephen Ilungole and David Mugabe
THE shilling has hit an-all-time low of 2,725 as the increasing global demand for the dollar continued. This was weaker than Tuesday’s close of 2,635/2,650.
The impact of the weak shilling is hitting businesses hard, forcing them to share costs with consumers.
Miles Arinaitwe, a hardware retailer in Luzira, a city suburb, said yesterday that it had become difficult to convince customers that the rise in the cost of ironsheets was not his making.
Stuart Mwesigwa, the Roofings business development manager, said there had been an 8% rise for most of their products in the last six months due to the weak shilling.
“It is affecting us. We are dependent on imported raw materials, but 50% of our products are sold locally. By the time we go to the bank to replenish our stock using the dollar, we lose. We have to react by increasing prices,†said Mwesigwa.
Shamir Manji, the Hydery Forex Bureau managing director, estimated that 60% of the forex business was being driven by speculators.
“Donor-funding has gone down by 26%, meaning there is less inflow of foreign exchange into the country,†said Manji.
Elliot Mwebya, the Bank of Uganda communications director, said yesterday that the significant demand for the dollar from the corporate sector started last week.
“The euro crisis also seems to be getting worse with riots in Greece,†Mwebya said. The euro, the common currency for the European Union, has weakened of late due to economic crises in some member states such as Greece, Portugal and Spain.
The Bank of Uganda last week pointed at the Eurozone debt crisis as the major cause of the weakening shilling.
This is pushing investors with assets in euros to convert them into dollars, leading to the high global demand for the dollar.
The high local demand for dollars by oil companies, manufacturers and multinationals paying dividends to their foreign owners against poor dollar inflows is also piling pressure on the Uganda shilling.
The Central Bank promised to continue intervening in the market by selling or buying dollars, but did not intervene in the market yesterday.
“We shall meet tomorrow (today) and decide what to do,†Mwebya said in reference to the bank’s participation in the market.
Mark Bitarabeho, a trader at Standard Chartered Bank, argued that Bank of Uganda was probably staying away because it believed the depreciation was not driven by economic fundamentals and that the market was bound to correct itself.
Experts argue that the Central Bank should stabilise the exchange rate by injecting more dollars in the market and blacklisting speculators that it accuses of driving the shilling to record lows against the dollar.
The Central Bank of Kenya last week started auditing and restricting interbank transactions.
This action discovered improper interbank trading by five giant banks, which exported $260m, pointing to speculative positions. The banks were punished although the shilling did not recover immediately.
“The Central Bank has the legal mandate to tackle speculators,†said a financial expert.
Unprecedented demand for and tight supply of the dollar, a weakening shilling in Kenya, the region’s biggest economy and speculative trading have driven the Uganda shilling lower for much of this year.
But Kenya’s shilling rebounded to hit 89.7 yesterday, its highest level since June 17.
This was after the Central Bank of Kenya raised its overnight lending rates to 8% in a move described by analysts as a step in the right direction towards curbing inflation.
However, Tanzania’s shilling remained weak, recording a fresh all-time low of 1,621 per dollar yesterday.
THE shilling has hit an-all-time low of 2,725 as the increasing global demand for the dollar continued. This was weaker than Tuesday’s close of 2,635/2,650.
The impact of the weak shilling is hitting businesses hard, forcing them to share costs with consumers.
Miles Arinaitwe, a hardware retailer in Luzira, a city suburb, said yesterday that it had become difficult to convince customers that the rise in the cost of ironsheets was not his making.
Stuart Mwesigwa, the Roofings business development manager, said there had been an 8% rise for most of their products in the last six months due to the weak shilling.
“It is affecting us. We are dependent on imported raw materials, but 50% of our products are sold locally. By the time we go to the bank to replenish our stock using the dollar, we lose. We have to react by increasing prices,†said Mwesigwa.
Shamir Manji, the Hydery Forex Bureau managing director, estimated that 60% of the forex business was being driven by speculators.
“Donor-funding has gone down by 26%, meaning there is less inflow of foreign exchange into the country,†said Manji.
Elliot Mwebya, the Bank of Uganda communications director, said yesterday that the significant demand for the dollar from the corporate sector started last week.
“The euro crisis also seems to be getting worse with riots in Greece,†Mwebya said. The euro, the common currency for the European Union, has weakened of late due to economic crises in some member states such as Greece, Portugal and Spain.
The Bank of Uganda last week pointed at the Eurozone debt crisis as the major cause of the weakening shilling.
This is pushing investors with assets in euros to convert them into dollars, leading to the high global demand for the dollar.
The high local demand for dollars by oil companies, manufacturers and multinationals paying dividends to their foreign owners against poor dollar inflows is also piling pressure on the Uganda shilling.
The Central Bank promised to continue intervening in the market by selling or buying dollars, but did not intervene in the market yesterday.
“We shall meet tomorrow (today) and decide what to do,†Mwebya said in reference to the bank’s participation in the market.
Mark Bitarabeho, a trader at Standard Chartered Bank, argued that Bank of Uganda was probably staying away because it believed the depreciation was not driven by economic fundamentals and that the market was bound to correct itself.
Experts argue that the Central Bank should stabilise the exchange rate by injecting more dollars in the market and blacklisting speculators that it accuses of driving the shilling to record lows against the dollar.
The Central Bank of Kenya last week started auditing and restricting interbank transactions.
This action discovered improper interbank trading by five giant banks, which exported $260m, pointing to speculative positions. The banks were punished although the shilling did not recover immediately.
“The Central Bank has the legal mandate to tackle speculators,†said a financial expert.
Unprecedented demand for and tight supply of the dollar, a weakening shilling in Kenya, the region’s biggest economy and speculative trading have driven the Uganda shilling lower for much of this year.
But Kenya’s shilling rebounded to hit 89.7 yesterday, its highest level since June 17.
This was after the Central Bank of Kenya raised its overnight lending rates to 8% in a move described by analysts as a step in the right direction towards curbing inflation.
However, Tanzania’s shilling remained weak, recording a fresh all-time low of 1,621 per dollar yesterday.