Ugandan Shilling Strengthens as Offshore Investors Return to Market

The Ugandan Shilling has experienced a notable recovery against the US dollar, driven by the return of offshore investors to the local market. Bank of Uganda Governor Dr. Michael Atingi-Ego attributed this positive shift to recent successful auctions of government securities.

Appearing before the parliamentary Committee on Commissions, Statutory Authorities and State Enterprises (COSASE), Dr. Atingi-Ego responded to concerns raised by committee chairperson Hon. Muwada Nkunyingi regarding the high dollar rate and rising inflation.

The Governor explained that earlier pressures on the local currency were largely sparked by the U.S. Federal Reserve increasing its policy rates, which encouraged non-resident investors to sell Ugandan securities in favor of dollar assets. This capital flight pushed the exchange rate to nearly Shs4,500 per dollar.

To counter these pressures, the Central Bank raised the cash reserve ratio from 11 percent to 13.5 percent, pulling in nearly Shs1.3 trillion. Additionally, the Central Bank Rate was hiked from 9.75 percent to 12 percent. These aggressive tightening measures helped stabilize the economy and brought the dollar down to around Shs4,050.

According to Dr. Atingi-Ego, a recent government securities auction offering Shs1.4 trillion attracted immense interest, with offshore players purchasing in excess of Shs200 billion. This influx of foreign exchange significantly boosted the value of the shilling.

Despite the positive short-term results, the Governor cautioned that these monetary policy interventions are not permanent solutions. He urged lawmakers to champion the national tenfold growth strategy, focusing on agro-industrialization, mineral development, tourism, and science and technology to foster long-term economic resilience through value addition.

Read the full story on the Parliament of Uganda.