Ministry of Finance and Bank of Uganda officials exchange thoughts about the trend being taken by the Uganda Shillings, among other issues of economic importance
HABARI DAILY I Kampala, Uganda I The Ugandan shilling has staged a modest recovery against the United States dollar, strengthening towards the Shs4,400 mark as foreign investors position themselves ahead of the Bank of Uganda’s Shs1.4 trillion Treasury bond auction scheduled for Wednesday, October 28, 2026.
The recovery follows weeks of sustained pressure that pushed the local currency to unprecedented lows, with the dollar briefly approaching Shs4,500 in early trading on October 23 before retreating to Shs4,404 by midday, according to Bank of Uganda counter rates.
The latest movement offers some relief to importers and businesses grappling with the rising cost of settling dollar-denominated transactions, although financial market analysts warn that the improvement may not signal a lasting reversal of the shilling’s fortunes.
The immediate support has come partly from foreign exchange inflows associated with offshore investors seeking to acquire Ugandan shillings ahead of the government securities auction, alongside tighter domestic liquidity and the central bank’s recent interventions in the foreign exchange market.
Bond Auction Attracts Offshore Investors
The Bank of Uganda is preparing to reopen four existing Treasury bond instruments with maturities of two, five, 15 and 25 years, offering investors coupon rates ranging between 15% and 16%.
The auction comprises Shs250 billion in two-year bonds, Shs350 billion in five-year bonds, Shs450 billion in 15-year bonds and Shs350 billion in 25-year bonds, bringing the total offer to Shs1.4 trillion.
The attractive yields have helped draw interest from investors seeking returns on Ugandan government securities. Those bringing dollars into the market must exchange at least part of their foreign currency for shillings to purchase the domestic instruments, potentially supporting demand for the local unit.
However, the effect depends on the scale of fresh inflows and whether they exceed competing demand for dollars.
The auction comes at a sensitive moment for the currency, following a period in which foreign investors reduced their exposure to Ugandan bonds, contributing to pressure on the exchange rate.
Earlier reports indicated that offshore investors had been selling local debt holdings as changing international financial conditions made alternative investments more attractive. The resulting demand for dollars added to pressure from importers and energy companies.
The latest bond sale could therefore provide temporary support if foreign investors return to the market in sufficient numbers.
Tight Monetary Policy Supports the Shilling
The recovery has also been supported by tighter monetary conditions after the Bank of Uganda raised its Central Bank Rate (CBR) by 225 basis points, from 9.75% to 12%, on October 14.
The increase, one of the central bank’s strongest recent policy adjustments, was intended to contain inflationary pressures arising from the weakening shilling, rising international oil prices and deteriorating external balances.
The tighter policy has pushed overnight and short-term money market rates to approximately 12.25%–12.50%, increasing the cost of obtaining shillings and potentially making local-currency assets more attractive to investors.
The central bank has also returned to the foreign exchange market to sell dollars, seeking to moderate excessive exchange-rate volatility after weeks of depreciation.
Bank of Uganda Governor Michael Atingi-Ego previously assured financial sector participants that the country had the capacity to manage the currency’s instability.
Speaking at the 2026 Bankers Conference in September, Atingi-Ego said the shilling had weathered similar episodes of depreciation in the past and subsequently stabilised.
“Bank of Uganda has what it takes to stabilise this exchange rate. So, be still. All will be fine,” he said.
However, the central bank maintains that Uganda operates a market-determined exchange-rate system, meaning the shilling’s value is influenced by the supply and demand for foreign currency rather than a fixed rate defended by government.
Analysts Warn Against Premature Optimism
Despite the recent improvement, financial market analysts caution that the shilling remains vulnerable to renewed pressure from importers, energy companies and investors seeking to move funds out of Uganda.
Stephen Kaboyo, managing partner at Alpha Capital Partners, has attributed the currency’s weakness to sustained dollar demand, elevated international oil prices and offshore capital outflows.
He warned that central bank interventions could provide temporary relief without necessarily reversing the underlying market pressures.
“The underlying pressures remain elevated. High importer demand, high global oil prices and offshore outflows continue to outpace the available stock of dollars in the market,” Kaboyo said, as reported by Daily Monitor.
His assessment suggests that a sustained recovery will depend on whether foreign exchange inflows improve and dollar demand eases beyond the immediate bond-auction period.
The depreciation has already raised concerns about the cost of imported fuel, machinery, medicines and industrial raw materials. A weaker shilling increases the local-currency cost of these goods and can feed into transport charges, production expenses and consumer prices.
The Bank of Uganda has warned that headline inflation could rise to between 7% and 7.5% over the next 12 months if external pressures persist.
Although the shilling’s rebound towards Shs4,400 offers a measure of relief, the currency remains under pressure. On October 26, the central bank’s indicative rates put the dollar’s buying price at Shs4,429.76 and selling price at Shs4,439.76.
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