The Bank of Uganda (BoU) notified commercial banks on October 22 that it was selling foreign currency as the shilling continued to depreciate against the US dollar despite an emergency interest-rate increase the previous week.
“BOU (The Bank of Uganda) is in the FX market on the sell side,” the central bank said in a notice cited by Reuters.
The notice did not disclose the amount offered, how much foreign currency had been sold or the terms of the intervention.
The move followed an emergency Monetary Policy Committee meeting on October 14, when the central bank raised its benchmark interest rate by 225 basis points to 12%, from 9.75%, to contain currency depreciation and mounting inflationary pressures.
The shilling initially strengthened following the rate increase but subsequently resumed its decline, reaching fresh lows against the dollar.
The dollar closed at UGX4,208.10 on October 21, compared with UGX3,951.05 on October 14, according to Bank of Uganda reference rates reported by Uganda Business News. The dollar’s 6.5% appreciation in shilling terms over the period showed that the local currency had given up its initial gains despite the monetary tightening.
The central bank had already intervened in the foreign-exchange market after the October 14 rate increase, selling about $30mn late that day, Daily Monitor reported, a figure also cited by Stephen Kaboyo, a partner at Alpha Capital. The central bank did not publicly confirm that amount.
See IntelliNews: Uganda central bank raises interest rate to 12% at emergency meeting as shilling hits record lows
The intervention also follows President Yoweri Museveni’s public opposition on October 9 to using foreign-exchange reserves to defend the shilling. Museveni said he had blocked a central bank proposal to sell dollars, which he described as a plan to “squander our reserves”, arguing that “the depreciating shilling is good for exporters”. Uganda’s reserves stood at $6.52bn at the end of August, equivalent to 3.6 months of imports excluding oil-project goods, below the central bank’s four-month adequacy target.
In its October monetary policy statement, BoU attributed the depreciation pressures to worsening external balances, higher international energy prices and tighter global financial conditions.
The bank said Uganda’s current-account deficit had widened by $1.4bn to $4.6bn, reflecting weaker agricultural commodity prices, lower tourism receipts and rising import and transport costs.
BoU raised its forecast for average core inflation over the next 12 months to 5.5%–6%, from an earlier projection of 4%–4.5%, while projecting headline inflation of 7%–7.5%. Annual headline inflation rose to 4.6% in September from 4.1% in August.
The central bank also reduced its economic growth forecast for the financial year ending June 2027 to 6%–6.5%, from 7%–7.5%, citing tighter financial conditions, currency depreciation and elevated energy prices.
The October 22 notice confirmed that the central bank was again offering foreign currency to the market, but neither the amount sold nor the intervention’s impact on the shilling has been disclosed.
See IntelliNews: Uganda central bank raises interest rate to 12% at emergency meeting as shilling hits record lows