How shilling is holding against major foreign currencies

Kampala, Uganda | THE INDEPENDENT | The Uganda Shilling registered a slight depreciation against the US Dollar in November 2024 after registering consecutive gains in the previous two months.

A stable Shilling against currencies of major trading partners like Kenya, the USA, Europe, UK is vital for the certainty of commodity and service prices.

For example, a higher Dollar rate means Ugandans will have to look for a little more shillings to be able to buy an import priced in Dollars and vice versa.

On the other hand, exporters cash in on this because when they sell the products abroad and earn Dollars, the high exchange rate brings them more shillings than when the forex rate was low.

On average, the Shilling depreciated by 0.3 percent in November 2024, recording an average mid-rate of 3,678.6 Shillings each, up from 3,667.9 in October 2024.

However, by Tuesday, it was selling at 3,653.7 according to the official rate issued by the Bank of Uganda.

The loss was on account of strong corporate and interbank demand for the Dollar which outweighed the inflows mainly from coffee exports and remittances, according to the Ministry of Finance, Planning and Economic Development.

The Shilling however continued to gain against the British Pound Sterling and the Euro for the third month running.

On average, the Shilling appreciated by 2.2 percent and 2.0 percent against the Euro and British Pound Sterling in November 2024, respectively.

Over the previous 12 months to the end of November 2024, there has been a general appreciation of the shilling against all the major currencies, from 3,782 in November 2023 to 3,653.7 as of December 17, 2024, for the Dollar.

The shilling was at its lowest in March when it touched 3,900 to a dollar.

Against the Euro, the local currency started at 4,087 before rising to 4,220 in March but has since eased to 3,839 shillings each.

On the other hand, the Pound Sterling traded at 4,697 in November 2023 and went up to a high of 4,940 in March this year, before easing to 4,632 today.

The sharp depreciation of the shilling was largely attributed to the anticipated backlash on the Uganda economy of the passing of the anti-homosexuality law by Parliament.

The legislation drew responses from the US, Europe and the World Bank, with the latter suspending approval of future financing to Uganda. The effects have since eased with the global lender easing stance and engaging in talks with the government.

Looking ahead, Uganda’s positive economic prospects, strengthened by capital inflows into the mining and oil industries, could continue supporting the shilling exchange rate, according to the Ministry’s economic update.

Diaspora remittances are expected to continue propping the local currency, but this may decline in the short term.

Rahmah Masagazi, Head of Sales in the Global Markets Department at Absa Bank Uganda, says demand for the Dollar remains low, with some coming from tax payments, especially by the Manufacturing, Energy, and Telecom sectors.

The country is also enjoying in teased dollar supply from exports and the remittances from abroad.

“Dollar inflows were predominantly from inward remittances and agri-commodity space, predominantly from Coffee and Cocoa crops,” says Masagazi.

She says there’s anticipation of renewed Dollar demand this week after tax settlements “but we still peg the trading range to end the year between 3640-3700”.

The Kenya Shilling slumped through November 2023 and reached a record low of 23.4 in Ugandan currency in December. It then gained sharply against the local currency to sell at 29.5 by May. However, since then it has remained relatively stable with a downward tilt, selling at 28.26 Uganda Shillings.

Kenya’s currency also suffered against the dollar, withering the surge on the dollar since Donald Trump won the election, but experts warn that it risks foundering unless the nation’s economic growth revives.

After rallying 21 percent in the first seven months of the year, making it among the world’s best performers, it has since remained locked in a narrow range of around 129 Kenya Shillings per dollar with volatility nearing zero, according to Masagazi.

Interventions by the central bank, high interest rates, and new foreign-exchange trading rules are among the factors underpinning the currency’s stability with some market players saying that without these interventions, the shilling could drop to trade between 150 and 200 to a dollar.

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