Shilling Expected to Depreciate Further

Walter Wafula

28 June 2011

The Uganda shilling is expected to weaken further against the United States dollar this week if the Bank of Uganda does not intervene, according to currency analysts.

The shilling could trade between Shs2, 500 and Shs2, 510 against the US dollar this week, according to Mr Faisal Bukenya, the head of market-making at Barclays Bank Uganda. “With no further intervention, we expect it to cross the Shs2, 500 mark unless the central bank comes in,” he told Business Power in an interview last week.

By Friday evening, the shilling had tumbled to Shs2, 500 down from Shs2, 420 against the dollar at the beginning of the week. The weakness is projected to pile more pressure on the cost of doing business in the country and consumer prices.

Mr Bukenya attributed the depreciation of the Shilling against the dollar to the high demand for the American currency by major importers in the country. “We have seen pressure from the oil (fuel dealers) and manufacturing sectors. They have been active in the market on the buying side. Demand has been outstripping supply of dollars,” he said.

But Mr Emmanuel Tumusiime-Mutebile, the governor Bank of Uganda (BoU), attributed the depreciation to speculators in the market. The bank sold up to $40 million (about Shs99 billion) to strengthen the shilling but there was no significant impact by the end of the week. Mr Elliot Mwebya the spokesman of BoU said the bank would intervene if a wild swing in the exchange rate is observed but not as a result of normal demand and supply.

Mr Daniel Segal, an energy and petroleum consultant at Tapuz Group said, “The deprecation has a direct effect on the cost of petroleum products. 100 per cent of petroleum products in the country are imported. They are bought by the US dollar; they are shipped by dollar until they come to Uganda. As the local currency loses ground to the US dollar, the effect unfortunately translates to the pump price,” the former managing director of Kobil Uganda explained in an interview last week.

Mr Ivan Ntwali, the Supplies and Operations manager of Hass Petroleum a mid-sized fuel company told Business Power that the company has started factoring in the current foreign exchange rate in its planned oil imports.

“The exchange rate has a direct impact on our replacement cost. What it means is that when I am buying new stock, I have to put the new price into consideration, despite having old stock,” he said in an interview last week.

While the foreign exchange rate is a key component in the final pump price, Mr Ntwali said, the company will also have to put the international price of a barrel of crude oil before setting new prices of fuel.

Although the price of a barrel of oil has declined to as low as $91 (Shs225, 000) from as high as $124 (Shs276, 000) in April, fuel prices in Uganda continued rising last week. Oil majors including; Total and Shell Uganda adjusted a litre of petrol to Shs3, 600/Shs3, 550 up from Shs3, 500 in May while diesel has remained at Shs3, 300/ Shs3250.

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