Bank of Uganda has today intervened on the sale side of the interbank foreign exchange market by selling U.S. dollars to the market in order to smoothen out excessive volatility in the movement of the exchange rate in an attempt to save the weakening shilling.
In a statement released by the Central Bank’s Director CommunicationsChristine B Alupo, the intervention is intended to “remove the spikes in the movement of the shilling against the U.S. dollar that have been observed lately.”
She affirmed that today’s intervention is an indication of Bank of Uganda’s commitment and capacity to maintain the integrity of the shilling. “The Uganda shilling is not a one way bet and in order to strengthen the intervention, the bank has tightened shilling liquidity in the interbank market.”
Alupo also said that the intervention is not aimed at fixing exchange rate.
“Today’s actions are not aimed at official determination of the exchange rate. The Uganda shilling exchange rate remains market determined. The Bank does not target the level or direction of the exchange rate.”
In a comment published by local media today, Bank of Uganda governor Mutebile noted that the shilling is depreciating because current account deficit has widened.
“First, Uganda’s current account deficit widened in 2014/15 by an estimated $700m, to almost $2.9b… This was mainly because our exports of goods and services fell in the last fiscal year,” Mutebile said.
He added; “our trade deficit in goods and services was larger by $582 million in 2014/15. In addition to the larger trade deficit, dividend payments by foreign owned companies were higher by almost $250 million, which reflects a recovery in corporate profits in 2014/15, and this also contributed to the widening of the current account deficit.”
Bank of Uganda’s Monetary Policy Committee will meet on Monday, July 13, 2015; to assess the current state of the economy, and respond appropriately.