Assessing factors that influence the exchange rates in Uganda (2000- 2019)

Abstract

This study examines the impact of macro-economic factors on the foreign exchange rates for Uganda for the period of 2000 to 2019. For this purpose, the paper shall employ different econometric techniques in analyzing statistical phenomenon of these variables. The empirical findings reveal that the macro-economic factors significantly predict and influence the exchange rates. The explanatory variables were ; central bank rates,interest rates, exports ,lending rate, imports, inflation and the dependant variable was exchange rates. The study showed that higher exchange rate reduces the expansionary effect on real GDP by reducing X-M, resulting in crowd out effect. Bank of Uganda has for so many years has reduced the central bank rate in order to increase private investment through encouraging borrowing, but it has not the case, most commercial banks in Uganda still set their interest rates way above 30% despite the reduction in the bank rate from over 17% to 9%. Over the period 2005-2019, every unit increase in the CBR, on average, the exchange rate increased by about 6.712453 units. That is, the dollar appreciated because it was getting more UGX for every dollar exchanged