Yesterday commercial banks quoted the shilling at a five-day low last seen on October 22 of 2,708/2,718, weaker than Monday’s close of 2,702/2,712. Prior to its decline this past week, the shilling last traded weaker than 2,700 to the dollar in January 2013 a report by The East African says.
“Pressure on the shilling is rising because we have strong and consistent demand from manufacturing and energy firms,” said Ahmed Kalule, trader at Bank of Africa.
“My thinking is we’ll see more depreciation unless Bank of Uganda (central bank) comes in on the supply side.”
The local currency has been under pressure largely on account of strong demand from importers who are making payments for their monthly imports and others shipping in goods in advance for year-end holiday shoppers.
FX inflows seem to have reduced considerably and given that this particular week, there is no government securities auction.
Under the current market conditions the shilling is poised to touch further lows. The market expectation is that the Central Bank is likely to swing into action and arrest the decline.
Going forward, the reality is that currency headwinds are unlikely to turn into currency tailwinds soon because of the lack of strong fundamentals, primarily the current account deficit.
The Ugandan shilling last suffered huge depreciation rates in October 2011 when it touched Ush2,900 per dollar.