Uganda’s shilling breaks 4,000 as importers rush for dollars

Uganda’s shilling has fallen through the 4,000-per-dollar mark, leaving businesses preparing for year-end imports facing a weaker currency just as they seek more dollars. Commercial banks were quoting 4,017 shillings to buy a dollar and 4,027 to sell one, according to Daily Monitor Uganda (direct). The newspaper reported that the currency had reached its weakest level on record, crossing a threshold the Bank of Uganda has defended in the past.

The shilling has lost more than 300 against the dollar since March, when it traded at about 3,604. Its decline gathered pace late last month. Some banks were selling dollars at 4,040 earlier this week, the report said. Those quotations put the currency beyond the 4,000 level that has featured in previous episodes of pressure, with the latest move coming as businesses prepare for their peak import season.

Import demand meets expensive energy

Foreign-exchange dealers — traders who buy and sell currencies — linked the weakness to heavy dollar purchases by manufacturers, energy importers and merchants preparing for year-end shipments. High global crude prices added to that pressure. The demand is not confined to immediate purchases: businesses are also seeking dollars in advance of the holiday trading period, bringing future currency needs into the market now.

Stephen Kaboyo, a foreign-exchange expert and partner at Alpha Capital Partners, described the strain as unusually intense. He said traders buying dollars early for peak-season imports had accelerated the depreciation, or loss of the shilling’s value against the dollar. Despite the sharp fall, he said, the Bank of Uganda had stayed out of the market rather than intervening directly. Kaboyo also pointed to expected corporate outflows as another source of vulnerability.

A central bank watching the pace

Governor Michael Atingi-Ego offered bankers reassurance at the Annual Bankers Conference in Kampala on September 18. The shilling was then trading at about 3,930 to the dollar. He linked the recent decline to developments in global oil prices and stressed that the currency’s value is set by the market. His message was that the central bank retained the capacity to stabilise the exchange rate.

The Bank of Uganda has the capacity to stabilise the exchange rate, Governor Michael Atingi-Ego told bankers.

The governor placed the latest pressure alongside earlier shocks. Rate increases in July and August 2022 pushed the shilling from 3,650 to nearly 3,900. In August 2023, the World Bank’s halt to new financing left it trading just short of 4,000. Regional bond activity then drove it to the 4,000 level in February 2024, he said.

But the central bank distinguishes a weaker currency from a disorderly market. Atingi-Ego said its intervention policy aims to limit excessive volatility — sharp, erratic exchange-rate moves — rather than protect a particular price. He said the depreciation had been smooth enough not to warrant intervention. Next to watch is whether businesses’ dollar stockpiling ahead of the fourth-quarter holiday peak brings renewed pressure. Kaboyo warned that this seasonal buying, alongside high energy prices, could keep weighing on the shilling.