Tuesday, July 26, 2011

Shilling is third worst performing currency

The Uganda Shilling is one of the world’s worst-performing currencies, according to data compiled by Bloomberg, a news agency. The local unit is in third position coming after the Suriname dollar and the Maldives rufiyaa.

Since January the Shilling has depreciated by about 12 per cent touching an all-time low of Shs2,700 in more than a decade. The unit was by close of last week set for a weekly decline against the dollar amid increased demand for the greenback from local domestic banks.

It fell by 0.6 per cent to Shs2,600 per dollar bringing its decline so far this week to 1.9 per cent, according to Bloomberg’s data. Last week it closed at Shs2,585. A local foreign exchange dealer, Mr Benon Okwenje, said last week: “The Shilling weakened slightly because of demand in the interbank market.” However, the local unit has also seen pressure from both corporate demand and the manufacturing sector.

Businesses are pensive about the local unit’s trend, thus have been forced to increase stock capacity fearing for the worst. The Shilling has since the beginning of this year heavily depreciated against major currencies on the back of rising inflation, high fuel prices, power outages and international market volatilities.

In May, inflation rose to 16.1 per cent - a 17-year high, before slowing to 15.8 per cent in June. However, the central bank has stepped up measures that aim to stabilise the unit.

Apart from a regular market interventions, the central bank recently increased interbank interest rates from 11 per cent to 13 per cent. The move is part of the lager plan that seeks to mop up excess liquidity from the money market so as to curb the runaway inflation.

The government is also optimistic that the Shilling will soon be lifted as the petrol dollars begin to flow in. Uganda has an estimated 2.5 billion barrels of oil, with about 1 billion in proven reserves, according to Tullow. It is expected that by 2012 the country would have started pumping oil for commercial purposes.

Source: http://www.monitor.co.ug

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