Shilling holds steady against dollar after central bank rate cut
Economists warn that the demand for the US Dollar is expected to outstrip its supply further impacting the exchange rate. PHOTO/FILE
What you need to know:
- Looking ahead, Ms Kijjaggulwe projected that the currency is likely to remain capped within a range, with demand expected to remain robust in the coming weeks and flows remaining consistent.
The recent cut in the central bank rate by the Bank of Uganda has had a minimal impact on the foreign exchange market, with the Uganda Shilling trading within a tight range against the US dollar.
The official exchange rate at the Bank of Uganda on Friday showed the shilling trading at Shs3,724.73 per US dollar buying and Shs3,734.73 selling per US dollar. In the open market, the exchange rate was slightly different, with the shilling opening at 3725/3735 levels and closing at 3722/3732 levels.
Ms Catherine Kijjaggulwe, the Head of Trading at Absa Bank Uganda, said: “Money markets were fairly liquid on Friday with overnight yields at averages of 10.19 per cent, the mid-month tax remittances are due during the coming week. Bank of Uganda is scheduled to hold a Treasury bill auction on Wednesday, August 14, 2024,” she said.
"The cut in the Central Bank Rate by 25 basis points did not have any impact on the currency markets during the week. Commodity flows continued to trickle into the market but were quickly balanced by the demand from the manufacturing, energy, and telecom sectors," she added.
Looking ahead, Ms Kijjaggulwe projected that the currency is likely to remain capped within a range, with demand expected to remain robust in the coming weeks and flows remaining consistent.
“As we head into the mid-month tax period, there is still no strong conviction on the likely direction of the currency that is still likely to remain capped within a range. The likely range is still projected within the 3700 - 3780 levels," she said.
She explained that government securities coupons and maturities kept the Money markets liquid, with overnight yields trading within the 7.50 per cent - 10.50 per cent levels. The Bank of Uganda was in the market through its Open Market Operations to mop up the excess liquidity through short-term Repos.
She said the Bank of Uganda held a 3-year, 10-year, and 20-year Treasury bond auction and yields cleared at averages of 15.25 per cent, 15.75 per cent, and 16.50 per cent respectively.
