The dollar, which has surged on expectation that the US Federal Reserve will raise interest rates, has seen the Uganda shilling lose 6.8 per cent, while the Tanzania currency has shed 5.6 per cent since the beginning of the year. The Kenya shilling has lost 3.1 per cent, and the Rwandan franc 2.4 per cent.
Uganda blames increased corporate demand for dollars and uncertainty over the government’s fiscal management and spending before the 2016 elections.
By the end of last week, the Bank of Uganda had intervened for a record 10 times since the start of the year, selling dollars on the market to boost the shilling after it hit a low of 3,116/3,126 two weeks ago.
BoU communications director Christine Alupo attributed the shilling’s weak performance to increased demand for dollars from the corporate sector, who are seeking to fund imports, and dividend payments to foreign shareholders following improved profits.
“We have intervened by selling dollars several times this year to stem volatility and restore stability to the market,” Ms Alupo said.
By the close of trading last week, the Uganda shilling had dropped to Ush3,000.40, before gaining 0.42 per cent when the central bank sold an unspecified amount of dollars.
Benoni Okwenje, a currency trader at Stanbic Bank Uganda Ltd, told Reuters that the shilling’s weakening can be attributed to investor apprehensiveness over expected pre-election government spending.
“Foreign investors are selling off their government debts in the fear that expected government spending will fan inflation,” Mr Okwenje said.
Last week, the Central Bank of Kenya announced plans to mop up $109 million in excess liquidity from the money markets using repurchase agreements and term auction deposits.
According to research firm Stratlink Africa, since the beginning of the year, CBK has mopped up $448.1 million from the market.
The shilling started the year at Ksh90.72 to the dollar, and is currently trading at Ksh92.14, with analysts at Standard Bank, Citi, Barclays Africa and Consensus Economics Forecast predicting that it will depreciate to about Ksh94.70 by the end of the year.
Barclays head of Africa macro-economic and strategy research Jeff Gable said that they expect the Kenya shilling to continue to weaken against the dollar because of the the country’s sizeable current account deficit.
After a two-year period of stability, the Tanzania shilling came under pressure from a stronger dollar in 2014, particularly in the second half, depreciating by 8 per cent. In the three months of 2015, it has depreciated by 5.6 per cent to the dollar and is now trading at Tsh1,843. Barclays Bank predicts that it will average Tsh1.838 against the dollar in 2015 and Tsh1,912 in 2016.
The Tanzanian currency’s poor performance has been blamed on demand for the dollar by the oil and manufacturing sectors, coupled with the delay in budget support from donors that has weighed on the shilling and stalled public spending.
Last week, the World Bank and the African Development Bank said they would release $44 million of the promised but withheld $500 million for the 2014/15 budget.
In Rwanda, the large current account deficit coupled with a stronger dollar will see the franc weaken further in 2015. The franc depreciated by 6 per cent to the dollar in 2013, and 3.5 per cent in 2014 despite regular interventions by the BNR. In the past two months, the franc has lost 2.4 per cent to the dollar.
The franc is expected to trade at Rwf698 against the dollar in 2015, and Rwf722 in 2016, representing a 2.4 per cent depreciation in 2015.
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The East African
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