Pressure on UGX as demand for hard currency rises

The Ugandan shilling is facing pressure due to increased demand for hard currency from both interbank market players and energy importers. Despite remaining stable on Wednesday, the shilling's stability may be short-lived as various factors cause fluctuations in the currency. To discuss the impact of this heightened demand for hard currency and delve into Kenya's and regional macroeconomics, CNBC Africa spoke with Pamela Akidi, Manager, Retail Sales Global Markets at Stanbic Bank Uganda. Akidi highlighted the various factors influencing the Ugandan shilling's performance, including external events and seasonality factors like dividend repatriation and commodity seasons. She noted that a recent downgrade of Uganda's rating stirred buying interest and led to a depreciation of the currency. However, the shilling has appreciated by about 3.02% between March and April of 2024, driven by demand from importers and dividend repatriation amidst low supply. Looking ahead, as Uganda approaches the end of its financial year, the currency is expected to face marginal pressure. Moving to Kenya, positive earnings for Kenyan banks in quarter one were attributed to factors such as growth in customers' deposits and net loans, as well as investments in government securities. The interest rates environment also played a significant role in this positive performance. Furthermore, the $3.6 billion Mombasa Rail and Nairobi Highway Project in Kenya is expected to impact macroeconomics positively. With the project offering two options for transportation—using the highway or the railway—strong capital from investors is anticipated, leading to an inflow of dollars and enhancing the FX environment. This project is expected to drive GDP growth, improve transport efficiencies, and boost government revenues. In terms of the dollar's strength impacting East African currencies, Pamela Akidi noted that the dollar's recent gains have somewhat reduced pressures on sub-Saharan African currencies. While the dollar's strength may have a minimal impact, currency movements in East Africa will be primarily driven by local factors such as demand and supply. Akidi expects Tanzania's currency to experience a clawback, Uganda's shilling to face end-of-year pressures with a potential recovery, and Kenya's currency to trade steadily amidst dividend repatriations and importer activity. Overall, the region is expected to navigate currency movements based on local economic dynamics and external factors.