Uganda Central Bank Intervenes in Foreign Exchange Market to Support Shilling
Uganda's central bank sells foreign currency following a record interest rate hike, helping the shilling rebound from historic lows against the dollar.
POLICY WIRE — Kampala, Uganda — Uganda’s central bank informed commercial lenders in a notice issued on Thursday that it had entered the market to sell an undisclosed amount of foreign currency.
The intervention followed a turbulent week that compelled financial authorities to convene an emergency Monetary Policy Committee meeting and implement the nation’s steepest interest-rate increase in 15 years.
By Thursday afternoon at 3:53 p.m. in London, the Ugandan shilling traded at 4,043 per dollar, marking a 0.8% increase and making it the top-performing currency among 23 African currencies tracked by Bloomberg.
This marked the second consecutive day of gains for the local currency, which had previously crashed to a historic 33-year low on Tuesday as international investors dumped domestic bonds while authorities initially refrained from stepping in to defend the exchange rate.
Governor Michael Atingi-Ego emphasized that the exchange rate remains determined by market forces while affirming that the central bank remains prepared to utilize available policy tools.
The recent currency depreciation built up over several weeks, driving the shilling to successive record lows against the US dollar amid heavy foreign capital outflows.
Such capital flights intensified foreign exchange demand as investors rushed to convert their shilling-denominated assets into foreign currency.
The Bank of Uganda pointed to broader macroeconomic pressures behind the volatility, citing a strengthening US dollar, shifting global interest rates, escalating oil and shipping expenses, softer prices for certain exports, and robust domestic demand for foreign exchange.
Reporting by Policy-Wire (PW)
