BusyMarkets Kampala #002: Inflation outlook hazy despite good harvest

The Ugandan shilling was slightly weaker as predicted amidst thin activity from the demand and supply side in the interbank market. But traders had small demand for the pegged currency as they placed orders for goods overseas to kick on 2023 calendar/business year.

Now trading in ranges of 3725/3735. The outlook reflects a stable or stronger shilling this week because of mid-month tax obligations for most formal sector establishments and corporate governed entities. Inflation has finally peaked due to the good govt innervations of raising the rates with which commercial banks would borrow from the central bank (CBR).

Inflation dark cloud still lurks

The good agricultural harvest due to the stable rains we saw in December also helped keep inflation at bay. But the inflation outlook remains uncertain due to the ongoing evolution of supply shocks. While the factors that have elevated inflation over the past year are reversing, it will take some time before the effects pass through the prices paid by consumers.

Inflation affects the exchange rate of a country’s currency, therefore this part of marco economics is worth the mention. Below is how other indicators/commodities fared by the end of the first week of January on the international market according to market insider.

COFFEE $/Ounce 1.63
GOLD $/ Ounce 1838.68
OIL $/ Barrel 75.13
WHEAT $/ Bushel 8.6977

Stock prices still in red

Stock prices continued to be depressed in January and some retail investors are looking for a way out. The economy hasn’t been strong enough to absorb all the external shocks that disrupted the local markets and livelihoods. The Chief Executive Officer of Uganda Stock exchange said stock prices have depressed because of opportunities in the bond market.

The Uganda Stock exchange all share index which measures the movement of share prices of all listed companies dropped. Also the local company index year to date, just few days into 2023, is reporting loses. Only UMEME posted gains on the stock market this week unlocking a three-year high year high of shs 277 per share as demand outstripped supply significantly.

The gain represents a 32% jump in price movement as of 6th January 2023. It remains to be seen how the stock will trade in 2023 ahead of the end of the concession in March 2025. From the outlook of the status quo, investors will hold their stocks till the end of concession.

Government turns to treasury bills

There was a treasury bills auction on the 4th of Jan, as expected the interest rates continued their down trend. It is clear to see that the govt intended to borrow longer term. Of the UGX 45bn tendered money by investors in the 91-day auction, only UGX 1bn was accepted.

Of the UGX 118 billion tendered money by investors in the 182-day auction, only UGX 22 billion was accepted. There was appetite for the local debt in the 1-year paper as govt had offered to borrow 160 billion but went on to accept 264 billion. There is no treasury bills or bond auction this week beginning the 9th Jan 2023. Here is how the rates look like as of 6th Jan 2023. There have been significant movements in the primary and secondary market.

Period to Invest in Indicative interest rate per annum
91DAYT-BILL 10.30%
182 DAYT-BILL 11.00%
1YEART-BILL 12.20%
2YEARBOND 16.70%
3YEARBOND 13.50%
5YEARBOND 16.25%
10YEARBOND 17.50%
15YEARBOND 16.00%
20YEARBOND 17.00%


Seth Nuwagaba is an investment banker at one of the biggest banks in East Africa.