The Bank of Uganda has called an emergency meeting this week to raise the Central Bank Rate to support the shilling after two weeks of battering by the dollar.

East African currencies have been weakening since the beginning of the year. Uncertainty over the stability of the currencies threatens to undermine cross-border trade among the EAC member states as well as with the rest of the world.

The Bank of Uganda sold dollars on the foreign-exchange market on Thursday and Friday, and set a date for a Monetary Policy Committee meeting.

“The MPC will meet on July 13 to assess the current state of the economy and respond appropriately,” the bank said in a statement quoted by Bloomberg. Analysts expect the committee to review base lending rates upwards, from the 13 per cent set last month to about 15 per cent.

READ: BoU makes u-turn, sells dollars as Uganda shilling hits all-time low

BoU had raised the rate from 12 per cent in April, the first review since June last year. Neighbour and top trading partner Kenya hiked its rate by 300 basis points to 11.5 per cent, after shortening the frequency of reviews from two months to one; the country’s currency has lost ground against the dollar from 91 to more than 100 shillings.

The rate hikes are expected to curb inflation which hit 4.9 per cent in Uganda and 7.25 per cent in Kenya last month.

The Uganda shilling opened at 3608.5 on Thursday before it briefly recovered to 3,329.8 following the central bank’s intervention.

By close of business however, the shilling was losing ground again at Ush3,459.1. On Friday, the currency recouped after another intervention to close at 3255.2.

The Uganda shilling has dropped 21 per cent this year and is Africa’s second worst-performing currency after the Tanzanian shilling, which has lost 26 per cent, according to Bloomberg data. Nigeria recently restricted imports to basic commodities in a bid to prop up the naira, which experts say should be devalued.

Financial analysts say the Uganda shilling could fall steeply before the elections in 2016, given the government’s increased investment in public infrastructure, heavy domestic borrowing and election related expenditures, which tend to be inflationary.

The proportion of bank deposits held in foreign currency had increased from 36.5 per cent in March 2014 to 43 per cent at the end of last month.

In the run up to the 2011 election, the shilling lost 20 per cent of its value. Bank of Uganda Governor Emmanuel Tumusiime-Mutebile admitted last year that some of the money raised through Treasury auctions in 2011 was used to finance election campaigns. The campaigns for the next election start in October.

Ezra Munyambonera, a research fellow with the Economic Policy Research Centre, said speculation on the elections and external shocks from a resurgent dollar, the Greece default question hanging over the euro and a faltering Chinese economy were causing capital flight from Uganda.

This year, BoU has injected more than $200 million into the market in efforts to stabilise the shilling but without much success. On July 2, Mr Mutebile admitted that the mopping up of shillings from the market was not sustainable. Dr Munyambonera said BoU should resume capital controls to defend the shilling, as Nigeria has done.

Fred Muhumuza, a senior economist at KPMG, said the government should go slow on infrastructure projects in the face of dwindling donor support. “The government has become a bigger contributor towards the demand for dollars, yet in the past it was a major source,” Dr Muhumuza said.

Finance Minister Matia Kasaija has said the heavy investment in infrastructure is productive and will continue.

Mr Kasaija blamed the fighting in South Sudan and the euro crisis for hitting export receipts. He said he is looking at value addition to enable Ugandans to substitute imports with local products.

Analysts, however, say the government has borrowed at least Ush300 billion ($85.6 million) to finance Ugandan soldiers propping up South Sudan President Salva Kiir’s regime.   

Uganda is expected to borrow Ush7 trillion ($2 billion) from the domestic market this year.