Kampala: Central Bank governor Emmanuel Tumusiime Mutebile has said Bank of Uganda will no longer inject dollars in the currency markets because it is not sustainable.
In a statement released on Monday, Mr Mutebile said: “It is not sustainable for the Bank of Uganda to try and prop up the exchange rate, at levels which are not consistent with supply and demand in the foreign exchange market, by intervening and selling foreign currency. The BoU would simply deplete its foreign exchange reserves if it attempted to do this.”
Mutebile’s admission of failing to correct the shilling’s stability comes on the back of serious battering with the local unit shedding at least 27 per cent of its value since the beginning of the years, according to data from the Central Bank.
Bank of Uganda has since January injected more than $200m, seeking to calm the speed at which the shilling depreciates.
The shilling opened Tuesday at Shs3,439.39 at the buying side against the dollar and Shs3,449.39 on the selling side.
Mr Aly Khan Satchu, a Nairobi – based equity markets analyst with focus on East Africa told Daily Monitor in an email exchange that the central bank might have given up on the shilling’s stability, considering that some factors are beyond its control.
“He [Mutebile] is admitting that the shilling is being battered by forces beyond his control and that he wants to conserve his hard currency and not burn it up defending the indefensible,” he said.
The shilling has been losing on the back of reducing dollar inflows, especially from exports, remittances and tourism receipts.
Experts also say the strong recovery of the US economy, strong dollar and the current crisis in the Euro Zone have had adverse effects on the local unit, which has depreciated to its lowest since 2011.
Other economic fundamental including inflation and interests have also shown signs of volatility, rising to 4.9 per cent and a market average of 23 per cent respectively.
Experts also warn that the shilling might depreciate further, considering that electioneering money has started to get into the economy ahead of the Feb 2016 polls.
However, Mr Mutebile urged Ugandans to buy more locally manufactured goods in the face of rising import pieces.
“… depreciation can help the Ugandan economy adjust to a more challenging external environment, by boosting the competitiveness of traded goods industries, including manufacturing industries, and by encouraging Ugandans to purchase domestically produced goods rather than imports.
In a detailed statement Mr Mutebile also explained the reasons that have led to the shilling’s trouble since the year begun.