Uganda’s shilling has erased all its gains following a recent jumbo rate hike and dollar sales by the central bank to smoothen out currency volatility

The Ugandan shilling has given back all of its recent gains despite a sizeable central bank rate increase and direct dollar sales by the Bank of Uganda aimed at dampening currency swings. The episode points to a transmission channel where policy tightening fails to offset pressure from the external account, leaving the currency exposed to dollar demand and shifting portfolio flows. Frontier-market local-currency debt and Uganda-linked external bonds are the most exposed, since rate hikes that do not stabilize the exchange rate raise the risk premium investors demand on shilling assets and widen spreads against regional peers. Traders should watch the Bank of Uganda's next monetary policy decision and subsequent reserve data for evidence of whether intervention is being sustained and whether the rate differential is attracting or deterring inflows.

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