BusyMarkets Kampala #005: Inflation outlook stronger in short & long term

The UGX traded stronger this week supported by low appetite for dollars from importers and interbank market. Also mid-month statutory obligations settled in Uganda Shillings, play in favor of the local currency. Inflation is expected to continue declining to 5% target by end of 2023 but for now it’s into double digits 10.2% especially core inflation (Food and Energy).

What are the risks of Uganda’s inflation outlook?

Upside risks

Never the less the inflation outlook is surrounded with some risks. The upside risk being;

  • The impact of international financial conditions on the shilling exchange rate.
  • Slower adjustment in domestic demand due to tight monetary and fiscal policies
  • Higher food prices due to unfavorable weather.
  • Faster global economic recovery and possible increase in global energy prices and
  • A resurgence of supply chain distortions due to heightening geopolitical tensions.

Downside risks

The downside risks to inflation outlook include;

  • Bumper food harvests due to good weather.
  • Lower than expected global growth due to high interest rates
  • Faster decline in international commodity prices
  • Lower domestic demand due to declining real incomes.

The outlook is for a stronger UGX short and long term unless something drastic happens.

Diageo Kenya’s interest in EABL

Diageo Kenya Limited hereby announced that, pursuant to the Tender Offer Document also published on 14th Oct 2022 (the Tender Offer Document) on Diageo Kenya’s website and on the data processing agent’s website, was offering to acquire up to 118,394,897 ordinary shares in EABL, which represents a maximum of 14.97% of the issued share capital of EABL, by means of a partial tender offer (the Tender Offer) made to all other shareholders of EABL.

Subject to the terms and conditions set out in the Tender Offer Document and the Tender Form, the Tender Offer opened at 9:00 a.m. on 6 February 2023 and will close at 5:00 pm on 17 March 2023 (Offer Period) and will be open to all holders of Ordinary Shares (other than Diageo Kenya) (Shareholders) on the register of EABL during the Offer Period.

In the event of an oversubscription, Shareholders appearing on the register as at 16 January 2023 (Record Date), will have a preferential right to tender up to a maximum of 10,000 Ordinary Shares. This to me implies that EABL through Diageo Kenya Ltd was able to see the loss of interest in equities investments by individual investors since 2020. Largely due to the after effects of COVID 19 as many listed companies are still recovering three years later.

But also being a PLC that pays out hugely in dividends, the intention to buy back could favor them since they are poised for good times. Investors should hold on to this particular equity.

Bank of Baroda taps Shashi Dhar

In other news, the Board of Directors of Bank of Baroda (Uganda) Limited informed its shareholders and the general public of the appointment of Mr. Shashi Dhar as Managing Director with effect from 06th February subject to completion of regulatory approvals.

Bank of Baroda is obliged to make a press statement as per Uganda Stock Exchange Listing rules. This company’s shares have never been outstanding both on the upside or down side. We wait to see the impact of the change of guard on the BOBU stock at USE this year.

Treasury bill interest rates

As earlier hinted, investors were willing to switch up to Ugx 1,316,997,500,000 of their holdings of the Source Bond: UG0000001244 11.000% maturing on 13-APR-2023 for UG12G2905259 14.000% maturing on 29-MAY-2025, UG12J1301280 14.125% maturing on 13-JAN-28, UG12J2005328 15.000% 15% maturing on 20-MAY-32, UG12K1405378 16.000% maturing on 14-MAY-37 and UG12L1408420 18.500% maturing on 14-AUG-42.

BoU on behalf of Ministry on Finance went ahead and accepted Ugx 714,086,400,000. Investors were targeting the prevailing fair interest rates while they last. But interest rates came out rather disappointing especially for papers 10 years and above since they dipped slightly. Here is how the Treasury bond interest rates look like in the secondary market.

2YEARBOND 14.00%
3YEARBOND 15.00%
5YEARBOND 16.25%
10YEARBOND 15.00%
15YEARBOND 16.24%
20YEARBOND 16.30%

There is a Treasury bill auction this week that was settled on Friday the 17th Feb of 2023 not the usual Thursday since that day is a bank holiday in Uganda (Archbishop Janan Luwum Memorial Day). I highly believe that rates will hold steady due to the tight fiscal and monetary policy as the moment. Fiscal and Monetary objectives are slowly but surely being achieved by the technocrats in charge I don’t see a reason for them to change course haphazardly.

Period to Invest in Indicative interest rate per annum
91DAYT-BILL 10.38%
182 DAYT-BILL 10.46%
1YEART-BILL 12.50%


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