As Shilling Slides, Businesses May Have to Choose Customers Over Profits

What the report says

Bank of Uganda’s latest monetary policy move comes as the shilling continues to weaken and importers face higher costs for foreign currency. In a briefing this week, a businessman described sharp losses from depreciation, saying higher dollar prices had raised liabilities and reduced profit margins. He asked what the central bank would do if the slide continued and how it would respond to reports of large capital outflows.

Governor Michael Atingi-Ego said the central bank had taken steps to slow the shilling’s decline and that its role is to reduce excessive swings rather than fix the exchange rate at a specific level. BoU’s Executive Director of Research, Adam Mugume, added that businesses may not be able to preserve the same margins when exchange-rate pressure and weaker demand hit at the same time. He suggested some firms may need to trim margins to keep prices affordable and retain customers.

The article says the exchange-rate strain is feeding into broader inflation pressures, with Uganda’s headline inflation and energy, fuel and utilities inflation both rising in September. It also notes that BoU raised the Central Bank Rate on October 14 to 12% from 9.75% to help contain inflation and support the shilling, though higher rates can also make borrowing more expensive for businesses. The piece argues that firms may need to balance pricing, customer retention and costs as currency pressures continue.