Ugandan Shilling Faces Challenges as it Trades Higher than US dollar for Second Week

 

The Ugandan shillings (Shs), has for the second consecutive week, traded higher than the United States Dollar ($), with a pile of predicted challenges it may face in the near future when all economies ease lock-downs.

In the last trading week, the Shilling was buying at 3780 and selling at 3790 respectively. By the end of this trading week, the shillings traded at a range of 3800/3810 in buying and selling respectively.

Stephen Kaboyo, the Executive Director of Alpha Capital Partners says that the Shilling maintained a range of Shs10, because the market activities remained curtailed due to COVID-19 effects on the economy.

“The outlook for the local currency indicate a stable unit with mild bias towards slight depreciation as the markets anticipate to pickup in demand due likely easing of lock down measures in the coming weeks,” he said

Unlike last trading week when the Bank of Uganda conducted the open market operations through a deposit auction which supported the currency and kept volatility in the money markets in check, this week nothing was done.

Last week, Amelia Kyambade, the Minister of Trade, Industry and Cooperatives announced the trade decline which she said had been caused by the COVID-19 pandemic,

According to Kyambade, the exports declined from $383.6m in January 2020 to $352.9 in February and the imports declined from $711.9 in January to $701.3 in February and $593.7 in March.

The assessment that was conducted by Alpha Capital Partners on money markets indicates that no primary auction was done in the fixed income segment in this week.

“The market activity was restricted to secondary markets with scanty trading reported,” Kaboyo notes

Economists predict that the pandemic will bite more even when the lockdown has been lifted.

When big corporations started cutting salaries of their employees, Ramathan Ggoobi, an economist and a senior policy analyst said that; the self employed individuals shall be out of the business even when lockdown is eased.

“This is what I feared from the beginning. The President and the Government of Uganda (GOU) thought that we were being doomsayers. These are terrifying precedents being set. Crises are like; Taxis is on the way, and it might be worse than COVI-19 for smaller economies like ours,” Ramathan posted on his official Facebook page this week.

“Actually manufacturers will suffer more since they are ‘suspendeable’. Good news is that it’s not too late; GOU can and should go for a budget-neutral policy, put Shs 2trllion on table to support workers and companies through the pandemic. It is good economics since such schemes stimulate demand and taxes, thus they are self funding policies,” he added.

However, in his Labour Day address to the nation this week, President Museveni said that the economy shall pick up faster even better than when it was before COVID-19.

“There are those that are panicking that; things are going to collapse. I am not part of that panic,” he said.

“Don’t listen to people who are talking doom. I don’t know why they are talking like that. Yes things may collapse in other countries but not Uganda.”

Museveni said the government shall capitalise the Uganda development bank (UDB) so that it lends manufacturers at a low interest rate which will promote industrialisation and development in the country.

The US dollar performed poorly again on the global markets.

Kaboyo says the dollar was undermined by the news that US economy shrank by 4.8% in the first quarter of 2020. Last week it had been undermined by the falling prices of WTI oil due to the drop in demand.

“This ended their streak of expansion.” Kaboyo said, adding: “The decline was attributed to the lockdown that led to rapid change in demand by businesses and households,”

Alpha Capital’s assessment indicates that the Euro (£) that was doing well in last trading week after the bouncing back of stable prices of  crude oil was also threatened in this trading week.

“It has only been supported by the news, that the European Central Bank (ECB) was to provide additional liquidity to the banks at concessionaire rates in order to shore up the financial system,” said Kaboyo

In the Monetary Policy Decisions that were issued in a statement by ECB on April 30, 2020, the Governing Council agreed that the interest rate on the main refinancing operations and the interest rates on marginal lending facility and deposit facility will remain unchanged at 0.00%, 0.25% and 0.50% respectively.