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Currently trading at 3,667/ 3,677, buying and selling legs. WHY the gains?
- Statutory obligations (Income Tax for the year ended 2022) that had to be settled in local currency before 30th June 2023 led to bigger demand for UGX.
- Inflation is easing into the manageable levels of 6% from 12% late October 2022. Remember when inflation is low, a currency is stronger, improving its exchange rate.
Kenyan Shilling in free fall
On the hand our Kenyan friends’ currency is getting a beating from the pegged currency (USD). This is mainly due to inflation and President Willam Ruto speech on Tuesday 27th June 2023, during his address at the Djibouti parliament. “We are not against the US dollar. We just want to trade more freely. Let us pay in US dollars what we are buying from the US. But what we are buying from Djibouti, let’s use local currency,” H.E William Ruto said.
With the biggest East African economy experiencing an unplesant exchange rate regime, group banks like Stanbic, ABSA, Bank of Africa embarked on a big strategy with subsidiaries outside Kenya to improve USD business. The plan is to lend and fix as much dollars as one can and liquidate/invest in Kenya for bigger and better returns. Let’s we forget, but Kenya is by far the biggest economy in East Africa therefore trickle down is massive for the region.
Stanbic Bank Uganda informed clients and public that their USD Prime Lending Rate would be adjusted to 13.5% from 11.75%, per annum-effective 31st/07/2023. The change in USD Prime Lending will apply to New and Existing borrowers. It’s a matter of time before ABSA, DFCU and Equity make a similar move. Ugandan banks averagely fix US dollars at 4%.
Imagine borrowing money with interest rate of 4% and lending it out at 13.5%. Then going ahead to transfer proceeds to an economy with dire need for the USD. This is working smart.
Not much buzzing on the Uganda stock Exchange
Because, prices of Stocks held steady throughout June 2023. However, it’s a different story at Nairobi Stock Exchange. The economic turmoil in Kenya only points to listed companies reporting unfavorable turnover. That implies meager/no dividends at the end of the year. Opting out is not an easy fete for holders of such assets since buyers are hard to get.
The market is perfectly competitive and highly informed. Big investors like NSSF – Uganda are stuck with shares worth UGX 600Billion on Nairobi Stock Exchange. NSSF will be willing to take the hit at year end but keep ears open in the market for any (Big / Small) buyers.
Money Markets
The T-Bills and T-Bonds Auction Calendar for Financial Year 2023-24 is out and can be accessed online through the Bank of Uganda website using the link. Additionally, there also happens to be a treasury bills auction today the 5th July 2023, my prediction is that interest rates will steadily continue to subdue as per what’s prevailing/indicative below.
91DAY T-BILL 9.00% per annum
182 DAY T-BILL 10.07% per annum
1YEAR T-BILL 12.00% per annum
Why?
- Contractionary policies to put aggregate demand and government expenditure on consumables, in check this financial year.
- The new 20-year Treasury bond that will be auctioned for the first time next week (12th July 2023) is like Ministry of Finance’s wildcard. Rates to these new bonds cannot be predicted thus investors will be playing Russian roulette with their monies. That sort of venture cd force government to respect the trend for the auction, at least this week.
Let’s wait for the next edition to see how well I predicted this week’s rates.
Seth Nuwagaba is an investment banker at one of the biggest banks in East Africa.
