Uganda's shilling has fallen to a two-year low against the US dollar, trading at 3,925 shillings per dollar in early trading. This depreciation is primarily attributed to a significant increase in demand for foreign exchange from critical economic sectors, including energy, manufacturing, and telecommunications. This current low surpasses its previous closing low of 3,924 shillings per dollar, recorded in March 2024.
The Bank of Uganda's indicative exchange rate reached Shs3,919 to the US dollar on Tuesday, a notable increase from approximately Shs3,604 in March, representing a loss of Shs315 over the period. Commercial banks were quoting the dollar as high as Shs4,040. Despite this depreciation, the central bank has not directly intervened, with Governor Michael Atingi-Ego stating that intervention occurs only when movements become disorderly. He noted that the recent depreciation has been smooth and not erratic, thus not warranting intervention.
The shilling's weakness is further exacerbated by Uganda's reliance on imported fuel, as higher international oil prices necessitate more dollars for petroleum product imports. While foreign exchange reserves remain relatively strong at $6.62 billion in July (slightly down from $6.68 billion in June but significantly up from $3.6 billion a year prior), inflows from traditional sources like tourism and the NGO sector have decreased. The International Monetary Fund estimates reserves cover about 3.1 months of imports, while the Bank of Uganda places it at about four months. The central bank anticipates stabilization with future oil exports and increased tourism.
In response to the volatility, the Bank of Uganda has raised the Cash Reserve Requirement (CRR) for commercial banks from 11% to 13.5%, effective September 24, 2026. This 2.5 percentage-point increase aims to tighten liquidity in the banking system, as excess shilling liquidity can translate into increased demand for dollars. The shilling lost about 6% against the dollar in September alone, closing August at approximately Shs3,710 and trading around Shs3,920 on Tuesday. A weaker shilling increases the cost of imports and could lead to higher consumer prices.
