Uganda shilling strengthens against dollar - BoU

Bank of Uganda has said in its monetary policy report of October 2024, which it released on Monday that in the three months to September 2024, the shilling appreciated by 1.9 percent, which indicates that Uganda’s domestic financial market has continued to remain stable.

The appreciation also saves the general public from high commodity prices as a result of high exchange rate due to deprivation of the national currency. 

However, on the other hand, the Bank of Uganda said in comparison it depreciated by 0.50 percent relative to the same quarter the previous year.

While delivering the monetary statement on October 7, the Deputy Governor of Bank of Uganda, Dr Michael Atingi-Ego, said stronger appreciation of the shilling is partly due to stronger capital inflows coupled with softer global inflation.

Exchange rates domestic financial market

Month after month, the Bank of Uganda said in the monetary policy for October that the Uganda shilling traded stably against the US dollar during September 2024, with an appreciation of 0.3 percent month-on-month to an average mid-rate of Shs3,711.31 per US dollar.

“The performance of the shilling was driven by inflows from coffee receipts, non-governmental organisations (NGOs), offshore players, and remittances, which subdued corporate demand from oil and manufacturing firms,” said Bank of Uganda.

Separately, the Uganda Coffee Development Authority (UCDA) said in its monthly report that Uganda coffee exports in September 2024, amounted to 532,212 60-kilogramme bags, worth $144.7 million (about Shs527 billion) .

In the monetary policy report for October 2024, the Bank of Uganda said the Nominal Effective Exchange Rate (NEER) also depreciated by 1.0 percent, year-on-year compared to a depreciation of 1.5 percent in the year ending August 2024.

The NEER is a measure of the value of the currency against a weighted average of several foreign currencies. An increase in NEER indicates an appreciation of the local currency against the weighted basket of currencies of its trading partners.

Similarly, Bank of Uganda said in real effective terms, the exchange rate sustained an appreciation path for more than 20 months. It also pointed out that in August 2024, the Real Effective Exchange Rate (REER) appreciated by 1.2 percent year-on-year as domestic inflation eased at a faster pace than foreign inflation.

Exchange rate in East Africa

In the East African Community (EAC) region, BoU said the Ugandan shilling and Kenyan shilling posted stronger performances against the US dollar compared to the Tanzanian, and Rwandan currencies.

In the period under review, the Kenyan shilling appreciated by 0.1 percent compared to an appreciation of 0.4 percent in August 2024 while the Tanzanian and Rwandan currencies depreciated by 0.60, and 1.0 percent relative to 1.4, and 0.9 percent, respectively, in the preceding month.

On the financing side, the central bank said the financial account balance improved, from a surplus of $500.2 million (Shs1.8t) in the quarter to May 2024 to $730.2 million (Shs2.66t) in the quarter to August 2024 due to higher Foreign Direct Investment (FDI) inflows despite a combination of negative factors, including offshore exits, high public debt service payments and constrained project aid/budget support inflows.

“FDI inflows were robust during the three months to August 2024, with net inflows amounting to $869.0 million (about Shs3t), attributed mainly to investment in the oil project-related activities. The strong FDI inflows reflect investor confidence in Uganda’s economy, particularly with the progress in oil exploration and production activities and the likely positive spillover effects,” the central bank said in the monetary policy report.

The central bank further explained that the portfolio transactions resulted in a net outflow of $111.3 million (Shs405b) in the quarter to August 2024, a reduction in net outflow of $146.4 million (Shs533b) compared to that of the quarter to May 2024 mainly on account of offshore investors’ exit from the government securities market.

Relatedly, the central bank said the other investment account posted net outflows of $28.7 million (Shs105b) in the quarter to August 2024 largely driven by lower budget support disbursements.

STOCK OF FOREIGN EXCHANGE RESERVE

The central bank said the stock of Uganda’s reserves at the end of August 2024 was $3.397 billion (Shs12.37t), which is equivalent to 3.1 months of future import cover excluding oil project-related imports, an improvement from $3.258 billion (about Shs11.87t), which was about 3.0 months of imports excluding oil project imports at end May 2024