Uganda Shilling Plummets to Record Low Against US Dollar

The Ugandan Shilling has hit an all-time low against the US dollar, with commercial banks quoting rates of 4017 for buying and 4027 for selling. This breach of the psychological 4,000 mark comes after a steady depreciation throughout the year, which has accelerated in recent weeks.

Forex dealers attribute the currency’s weakness to a surge in demand for dollars from manufacturers, energy importers, and traders preparing for end-of-year international purchases. High global crude oil prices are also contributing to the pressure on the shilling.

According to forex expert Stephen Kaboyo, the shilling faced “extraordinary strain” and “immense pressure,” testing the 4,000 level. He explained that seasonal demand, with traders “front-loading” their import needs ahead of the peak year-end season, amplified the pace of depreciation. Notably, the Bank of Uganda has so far opted against direct intervention, a decision Kaboyo suggests highlights the shilling’s vulnerability to seasonal demands and anticipated corporate outflows.

Looking ahead, Kaboyo warns of continued pressure as businesses stockpile dollars for the fourth-quarter holiday season, with elevated energy prices likely to further weaken the currency. This trend echoes previous shocks, including a significant depreciation in late 2022 and market volatility in August 2023 and February 2024.

Despite the current volatility, Bank of Uganda Governor Michael Atingi-Ego assured bankers on September 18 that the central bank possesses the “firepower to steady the market.” He emphasized that the bank’s intervention policy focuses on smoothing excessive volatility rather than defending a specific exchange rate level. Atingi-Ego noted that the recent depreciation, while sharp, has not been erratic enough to warrant direct intervention.

Source: Daily Monitor (Uganda)