June 30 (Bloomberg) -- Uganda’s shilling surged the most in 2 ½ years against the dollar after the central bank sold foreign-exchange to halt the currency’s decline to another 18- year low.
The currency of Africa’s second-biggest coffee producer strengthened as much as 4.9 percent, the biggest intraday advance since November 2008, and was trading 3.4 percent higher at 2,590 per dollar by 6:36 p.m. in Kampala, the capital. The shilling is the best performer worldwide against the dollar, according to data compiled by Bloomberg.
“We have intervened with a significant amount to deal with the volatility in the market caused by a speculative bubble,” Stephen Kaboyo, director of financial markets at the Bank of Uganda, said in a phone interview today. “We cannot let the currency go that way.”
The Bank of Uganda has sold dollars at least three times this month to stabilize the shilling. The currency weakened as inflation surged to a 17-year high of 16 percent in May amid higher food and fuel prices. Price-growth slowed to 15.8 percent in June, the Uganda Bureau of Statistics said today.
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 trading. The central bank’s foreign reserves currently stand at 5.62 trillion shillings ($2.17 billion), according to the bank’s website.
Today, the central bank also tightened liquidity by “mopping up excess Uganda shillings,” leading to an increase in domestic money-market interest rates, Elliot Mwebya, director of communications at the central bank, said in an e-mailed response to questions.
“The central bank stands ready to intervene should it detect any more speculation,” Mwebya said. The bank “does not defend a particular rate as long as it is in line with economic fundamentals.”
Uganda, East Africa’s third-biggest economy and the continent’s second-largest coffee producer, 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, Ana Monteiro.
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