The Uganda shilling was relatively flat against the dollar for most of the week, ahead of two key economic events: - the inflation number and Central Bank Rate policy announcement - as most market players refrained from placing big orders.
However, overall for the month of July, the shilling registered a marginal gain of 0.1 per cent. Another notable development was the announcement by Bank of Uganda to resume its reserve build-up program through daily purchases of $2m, aimed at boosting sovereign reserves. Recent numbers indicate a reserve level of approximately $3bn.
The resumption of this strategic move is expected to have no detrimental effect on the currency as the market size can easily absorb this demand. The inflation numbers released on Wednesday indicated a rise in inflation. For the first time in six months, inflation has tested Bank of Uganda’s target of 5 per cent.
It is likely that the Central Bank will refine its policy with a sense of caution and incline towards keeping the rate at current level. The market outlook for this week suggests a stable shilling as markets seem to have priced in a neutral policy stance with respect to the Central Bank Rate.
In the medium term, the unfavourable balance of payment positions as well as the absence of offshore flows will keep the shilling under moderate depreciation pressure. Trading levels expected to be in the range of 2,570/90.
Stephen Kaboyo is the managing director of Alpha Capital.