Increased dollar inflows strengthen shilling

Increased dollar inflows, especially from offshores non-governmental organisations and export receipts have shielded the shilling leading to sustained appreciation since beginning of the year.

In its monetary policy presentation recently, Bank of Uganda said the shilling-dollar rate was relatively stable with a bias towards an appreciation due, in part, to the increased inflows during the festive season.

In the first quarter of 2020, the central bank said, the shilling appreciated by 0.1 per cent to an average mid-rate of Shs3,680.8 per dollar.

The unit, which has been relatively stable since last year, Bank of Uganda noted, appreciated by at least .06 per cent in January alone.

Subdued demand
The appreciation, the Central Bank noted, was on account of supply from offshore investors, NGOs and export receipts amidst subdued demand.

The shilling has recently recovered from volatilities, mainly driven by increased demand for the dollar amid low supply and inflationary pressures.

Mr Kelvin Kizito Kiyingi, Bank of Uganda deputy director communications, early this week, told Daily Monitor, the shilling has registered stability since the start of 2020 only registering a depreciating rate of 0.2 per cent as of February.

The shilling, he said, currently stands at Shs3,675.36 per dollar compared to Shs3,665.21 in December last year.

This, Mr Kiyingi said, has been subdued demand from offshore investors, oil and the manufacturing sector, which has been matched with inflows from NGOs, coffee receipts and forex bureaus

The central bank also projected that the shilling will remain stable in the short run on the account of the expected high remittances.

Expected to weaken

However, Mr Kiyingi noted, in the medium term, the exchange rate may weaken on account of the weakening current account balance, heightened by the volatility in the global financial markets and policy uncertainty including Brexit that could lead to capital reversals on account of flight to safety.

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