The Uganda shilling has recovered as offshore investors have returned to Uganda’s government securities market and the shilling has recovered from nearly 4,500 to the dollar to about 4,050, Bank of Uganda Governor Michael Atingi-Ego told MPs on Tuesday.
The governor said, however, that the central bank’s measures are short-term and cannot be sustained, according to a statement from the Parliament of Uganda.
How did Bank of Uganda defend the shilling?
Atingi-Ego told the Committee on Commissions, Statutory Authorities and State Enterprises that non-resident holders began selling Ugandan securities to buy dollars after the US Federal Reserve raised its policy rate, which made dollar assets more attractive. That added depreciation pressure on the shilling, he said.
The central bank raised the cash reserve ratio for commercial banks from 11 per cent to 13.5 per cent, withdrawing close to Shs1.3tn from the market. On 14 October it raised its benchmark rate by 225 basis points, from 9.75 per cent to 12 per cent, according to the governor and to Daily Monitor reporting on the emergency tightening.
Have foreign investors come back?
At a recent auction the government offered Shs1.4tn of securities. Higher yields drew back offshore buyers, who bought more than Shs200bn, Atingi-Ego said, producing some dollar inflows.
The governor’s figures were given to MPs and have not been independently confirmed. The Daily Monitor earlier reported that more than $200mn left Uganda’s domestic market in two weeks before the rate rise, citing Citigroup estimates.
What happens next?
Atingi-Ego urged legislators to press the government to implement the country’s tenfold growth strategy, centred on agro-industrialisation, tourism, minerals and science and technology, to raise exports through value addition. MP Julius Nakiyi proposed more funding for coffee processing.
FAQ
What is Bank of Uganda’s benchmark rate?
The central bank rate is 12 per cent after a 225 basis point rise on 14 October from 9.75 per cent, the governor told MPs.
What is the Uganda shilling trading at?
The governor said the shilling had recovered to about 4,050 to the dollar from nearly 4,500.
Why did the shilling weaken?
Non-resident investors sold Ugandan securities to buy dollars after the US Federal Reserve raised rates, the governor said.
