Exchange rate:

2017
Uganda’s exchange rate is market determined, and is therefore vulnerable to both external
and domestic shocks. In June 2017, the shilling strengthened, appreciating by 0.9 per cent,
month-on-month (m-o-m), and but depreciated by 6.6 per cent y-o-y, to an average mid-
rate of UGX 3,591.17 per US Dollar. This appreciation was due to stronger inflows,
particularly from NGOs, coffee receipts, forex bureaus and receipts on NSSF investments in
the diaspora and offshores Both the Nominal and the Real Exchange Rates (NEER and REER)
depreciated y-o-y in May 2017. The NEER depreciated by 4.2 per cent, relative to 3.5 per
cent depreciation in April 2017. Over the same time, the REER depreciated by 4.0 per cent,
compared to a depreciation of 4.1 per cent in April 2017. The depreciation of the REER is a
pointer to increased competitiveness of the exports in the tradeable sector. Intervention by
the BoU in the Interbank Foreign Exchange Market (IFEM) is aimed at stemming disruptive
volatility and not to influence the direction of the exchange rate. In June 2017, conditions in
the IFEM enabled the BoU to purchase USD 60.0 million for reserve build-up, but sold USD
13.1 million to UETCL. Therefore, the total net BoU purchases in the IFEM in June 2017
amounted to USD 46.9 million.
In the FY 2016/17, net BoU purchases of foreign exchange amounted to USD 647.2million,
of which purchases for reserve build up amounted to USD 846.5 million. Going forward, the
shilling may remain weak on account of recovery in aggregate demand, uncertainty in global
financial markets conditions stemming from an inward focus in policies, particularly
protectionism causing reduced trade and cross-border investment in AEs and faster than
expected interest rate hikes in the US which could trigger a sharp dollar appreciation, and
structural liquidity injections given cancellation of auctions of government securities in June
2017.

2018:

The appreciation pressures observed in October 2018 continued in November 2018, with
the shilling appreciating by 0.9 percent month on month to an average rate of Shs. 3,740 per
US dollar. The exchange rate has appreciated by 2.6 percent since July 2018. The
strengthening of the shilling is in part driven by increased dollar inflows mainly from coffee
export receipts, offshore investors, and private transfers which more than offset demand in
the domestic foreign exchange market. The REER also appreciated by 1.3 percent year on
year in October 2018 compared to 0.9 percent depreciation in September 2018. This was
driven by the strengthening of the trade weighted exchange rate and the favourable
inflation differential.
The Kenya shilling depreciated by 1.23 in November 2018 compared to a 0.22 percent
depreciation registered in September 2018 while the Rwanda Franc depreciated by 0.40
percent in November 2018 following a depreciation of 0.39 percent in September 2018. The
Tanzania Shilling, however, depreciated only slightly by 0.03 percent in November 2018
compared to 0.10 percent in September 2018.

Overall, the relative stability experienced in October and November 2018 facilitated BOU’s
efforts to purchase foreign exchange for reserve build-up. In October and November 2018,
US$ 111 million was purchased for reserve build-up, resulting in a net purchase of US$ 88.4
million.

2019:

The Uganda Shilling remained largely stable over the quarter ended May 2019 despite some
volatility recorded in April 2019. On quarterly basis, the Shilling weakened by 1.1 percent
against the US Dollar, to an average midrate of Shs 3,736.3/US$ in the three months to May
2019, compared to the strengthening by 2 percent observed in the quarter ended January
2019. On monthly basis, the Shilling depreciated by 0.8 percent in May 2019 driven largely
by strong net dollar demand from offshore investors, manufacturing and oil firms. Notably,
banks maintained long dollar positions, which supported demand in the Interbank Foreign
Exchange Market (IFEM), and stemmed stronger depreciation of the currency. On trade
weighted basis (Nominal Effective Exchange Rate – NEER), the exchange rate appreciated by
3.2 percent in the quarter ended May 2019, adding to the appreciation of 1.8 percent
posted in the preceding quarter ended February 2019. On monthly basis the NEER
depreciated by 0.3 percent in May 2019. Taking inflation into account (Real effective
Exchange Rate – REER), the exchange rate depreciated by 0.4 percent on quarterly basis in
the quarter ended April 2019 and by 0.7 percent on monthly basis in April 2019.
Developments in regional exchange rates were mixed during the three months to May 2019,
with the Kenya Shilling appreciating, the Tanzania Shilling remaining largely stable and the
Rwanda and Burundi Francs depreciating slightly against the US dollar (Figure 11). The
Kenya Shilling appreciated by 0.5 percent to average KES 100.86/US$, the Tanzania Shilling
depreciated by 0.3 percent to average TZS 2,300.4/US$, while the Rwanda and Burundi
Francs both depreciated by 1.1 percent to average RWF 890.3/US$ and average BIF
1,831.2/US$ in the quarter ended May 2019 compared to the previous quarter ended
February 2019.

2020:
The Uganda Shilling has remained relatively stable partly reflecting subdued aggregate
demand. The shilling strengthened slightly in November 2020 compared to previous month
appreciating by 0.2 percent month-on-month to an average mid-rate of Shs. 3,710.68/USD.
Activity in the interbank foreign exchange market (IFEM) was subdued with demand from
telecom, energy and manufacturing sectors being matched to supply from offshores, NGOs,
remittances, forex bureau and coffee export receipts.
On a trade-weighted basis, in November 2020 the exchange rate (Nominal Effective
Exchange Rate - NEER) depreciated by 0.2 percent month-on-month and appreciated by 0.5
per cent year-on-year.
Movements in EAC Partner State currencies relative to the US Dollar were mixed the quarter
to November 2020. The Tanzania Shilling was stable appreciating by only 0.13 percent year-
on-year to an average rate of TZS 2,297.7 per US$. However, on an annual basis, the Kenya
Shilling and Rwanda Franc depreciated 5.3 percent each to aver average rates KES 108.8 and
RWF 960.0 per US $ in the three months to November 2020 as depicted in Figure 12.

2021:

The Uganda shilling appreciated in November 2021, following depreciation pressures that
started at the end of September 2021 and continued into October 2021. The appreciation in
November 2021 was supported by inflows mainly from offshore players seeking higher
returns on 25 | P a g e government paper, transfers from Non-Governmental Organisations
(NGOs), export earnings, and remittances.
The exchange rate appreciated by 4.2 percent year-on-year and depreciated by 0.3 percent
quarter-on-quarter to an average mid-rate of Shs. 3,553.62 per US dollar in the quarter to
November 2021 relative to the quarter to August 2021. The depreciation in September 2021
and October 2021 was largely due to the global strengthening of the US dollar against major
international currencies, the recovery of domestic demand for foreign currency, and
negative sentiments that were in anticipation of offshore demand.
In the near term, the shilling is expected to depreciate against the US dollar, partly due to a
pickup in import demand as economic activity recovers and the expected correction of the
overvaluation estimated at 3-5 percent. On a trade-weighted basis, the Real Effective
Exchange Rate (REER) depreciated by 0.1 percent year-on-year but appreciated by 1.02
percent quarter-on-quarter, in the three months to September 2021, based on inflation
differential.
In tandem with global developments, currencies of other East African Community (EAC)
states depreciated against the US dollar in the quarter to October 2021, as shown in Figure
14. On average, the Kenya Shilling and the Rwanda Franc depreciated by 2.1 percent and 1.0
percent, respectively, to average mid-rates of KES 110.1 and RWF 995.7 per US dollar, while
the Tanzania Shilling remained relatively stable at an average rate of TZ 2,298.0 per US
dollar, (quarter on quarter).