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Aid cuts, offshore investors cause shilling slide – BoU

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Aid cuts, offshore investors cause shilling slide – BoU

BoU Governor Tumusiime Mutebile

The Bank of Uganda has moved to alley fears about the recent sharp slide in the value of the shilling against the American Dollar.

In a statement issued by the Bank’s Deputy Director for Communications Edward Tenywa, the exit of offshore investors following the lowering of interest rates on government securities.

The local currency has lost 2.3 percent of its value between June 02 when the shilling was trading at Ushs 2,556 per US dollar and June 24, when it hit a low of Ushs 2, 616 to one American dollar.

The Bank said: “The lowering of interest rates on Uganda government securities has made other emerging and frontier markets relatively more attractive,”

The bank cited strong corporate demand for foreign currency on account of dividend payments as another force that has added pressure to the Shilling.

“Adverse sentiments about future donor flows have also played a role,” Tenywa noted.

The Central Bank said this week it intervened in the market by selling dollars to try to stem the slide. Tenywa notes however that it has sufficient buffer in the form of US$ 3 billion that is on disposal to enable it intervene to ease serious pressures on the local currency.

Following the enactment of the Anti-Homosexuality Law by Uganda, the United States government recently announcement new aid cuts targeting the Uganda police, Ministry of health, and the UPDF and a proposed programme for the establishment of a National Institutes of Health.

The US White House announced that it was cancelling a US$ 2.4m grant to Uganda to support community policing. An additional US$3m that was planned the National Institutes of Health was cancelled and shifted to another African country.

As a result of the anti-homosexuality law, Uganda has so far lost more than US$122 million in aid cuts earlier ear-marked for Uganda by Western donors including the US.

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