KAMPALA:- Despite economic challenges internally and globally, the Uganda shilling continues to register improved performance in 2021.
Data compiled by Bloomberg.com shows that the East African nation’s currency gained 0.1% to 3,529.50 against the dollar by 1 p.m. in Kampala, increasing year-to-date gains to almost 4%, the most on the continent this year after Zambia’s kwacha and Mozambique’s metical.
According to the data, Uganda’s shilling is Africa’s third-best performing currency this year and gained for a fourth straight day on Tuesday, buoyed by dollar inflows from coffee exporters and foreign investors chasing yield.
Benoni Okwenje, the general manager for financial markets at Centenary Bank confirms how well the Uganda shilling is doing and why: “We are seeing more dollar receipts, especially from coffee. “We have seen an increase in portfolio investments, which are being attracted to emerging markets. We continue to receive a lot of dollar inflows to non-governmental organizations.”
Uganda is Africa’s biggest coffee exporter and shipments climbed to a record in June on better yield from new trees, favorable weather and improved prices, according to the Uganda Coffee Development Authority. Exports in the first 10 months of the season that started Oct. 1 rose 20% year-on-year.
The coronavirus pandemic has hurt economic output from the net importer, resulting in less demand for the greenback, Okwenje said.
In addition, the shilling has benefited from the dollar’s general weakness against major global currencies, he added.
The local unit is projected to remain strong to the end of the year as portfolio investors are expected to stay active as economic growth accelerates
BOU Welcomes the news
Bank of Uganda welcomed this new development and confirmed Bloomberg had done a correct assessment.
“It echoes the messages in our reports,” Charity Mugumya, the Director in charge of Communications at BOU wrote to us.
She added that it is important to note that the current stability of the shilling is based on fundamentals or underlying factors.
“The strengthening of the shilling will, therefore, correct in the medium-term (say six months-one year ahead) with the recovery in domestic demand, particularly for imports, waning of the coffee season and strengthening of the US dollar against major currencies,” she emphasized.
In addition, she adds, the US Federal Reserve has indicated that they will be tapering their asset purchase programme, a signal that the US long-term bond rates should rise.“If the tapering happens sooner than later, portfolio investment flows, which have supported the appreciation of the shilling, are likely to reverse, in turn leading to depreciation of the shilling against the US dollar,” she concluded.
Additional information and credit: Additional information and credit: www.bloomberg.com