Bloomberg News

Uganda’s Shilling Weakens to 18-Year Low Amid Importer Demand

June 28, 2011

June 28 (Bloomberg) -- Uganda’s shilling fell to an 18-year low against the dollar on increased demand for the U.S. currency from oil importers following speculation by traders that the domestic unit would weaken.

The shilling depreciated as much as 2.6 percent to 2,591.50 per dollar, the lowest since June 1993, where it was trading at 5:27 p.m. in Kampala, the capital. It closed at 2,525 yesterday.

“There is high demand for dollars in the market, especially from the energy sector,” Benon Okwenje, a currency trader at Stanbic Bank Uganda Ltd. in Kampala, said in a phone interview. “Traders had taken a view the shilling was going to weaken.”

The Bank of Uganda has sold dollars at least twice in the past 10 trading days to stabilize the shilling, which is Africa’s worst-performing currency so far this year, according to Bloomberg data. The shilling has weakened as inflation in the East African country surged to a 17-year high of 16 percent in May amid higher food and fuel prices.

Governor Emmanuel Tumusiime-Mutebile said on June 16 the central bank “shall not hesitate to enter the market to stem speculation” in the domestic currency market. The central bank’s foreign reserves currently stand at 5.62 trillion shilling ($2.17 billion), according to the bank’s website.

The Bank of Uganda hasn’t sold foreign currency in the market today, Okwenje said.

“In recent weeks, we have seen heavy demand for the dollar,” he said. “In the last few months, we have seen low dollar inflows from exports and donors among other things.”

Earlier today, the bank denied a rumour that Tumusiime- Mutebile had resigned, without saying what the source of the speculation was. “The governor was reappointed by the president in January 2011 to serve a five-year term which he intends to serve in full,” the bank said in an e-mailed statement.

Uganda is scheduled to become an oil producer next year when Tullow Oil Plc is expected to start pumping crude and gas from the Lake Albert Basin. The country has an estimated 2.5 billion barrels of oil, with about 1 billion barrels in proven reserves, according to Tullow.

--Editors: Paul Richardson, Karl Maier.

To contact the reporter on this story: Fred Ojambo in Kampala via Nairobi at pmrichardson@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net.


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