Uganda Shilling recovers on easing price pressures

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Uganda Shilling recovers on easing price pressures
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The Uganda Shilling has remained very defensive against regional currencies as well as the US dollar after the Bank of Uganda hiked the benchmark interest rate in March 2024 as well as April 2024 by 0.5% to 10% from 9.5% and then by 0.25% to the current rate of 10.25%.

The rate hike regime by the Bank of Uganda is largely premised on elevated risks to inflation in light of global inflationary pressures alongside supply side shocks.

The Uganda Shilling started off the year on a weak note due to reduced USD inflows as well as push back on the rate cut narrative by the US Federal Reserve.

According to Nobert Kiiza a financial analyst with FX PESA , the recent rate hikes have however allowed us to see a much more defensive shilling currently trading at November 2023 lows after gaining against the US dollar.

“The Uganda Shilling gained 1.8%, 1.08% against the USD and KES respectively."

Global tensions emanating from Middle East instability have mostly reduced substantially since Bank of Uganda's April rate decision.

Uganda headline CPI on yearly basis for April marginally declined to 3.2% from 3.3% on the back of declining insurance and financial services prices.

The Uganda shilling is expected to gain against its counterparts as the real value of the shilling continues to appreciate on easing price pressures along with the current rate hike regime by Bank of Uganda.

The financial analyst says that the US Federal Reserve Bank announced quantitative tightening taper in their recent May bank conference, a process that will see them switch to a more accommodative policy and lead to rate cuts.

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