Ugandan shilling buoyed by low dollar demand, more gains seen

KAMPALA (Reuters) - The Ugandan shilling strengthened on Monday, helped by low appetite for the greenback, and was seen extending gains this week due to tight local currency liquidity and a forthcoming debt auction.

At 0938 GMT commercial banks quoted the currency of East Africa's third largest economy at 2,575/2,585 per dollar, stronger than Friday's close of 2,577/2,587.

"Appetite (for dollars) in the interbank and from corporate firms is low which we think points to weak economic activity and unless we get a pick-up in activity, the shilling will likely maintain an upward momentum," said Faisal Bukenya, head of market making at Barclays Bank.

Demand for hard currency has largely been muted for much of this year and traders have tied it to the central bank's cautious monetary policy stance and the lingering effects of 2011/2012 economic slowdown caused by sky-high inflation.

Despite low inflation this year, the Bank of Uganda has left its key lending rate unchanged for five straight months at 12 percent from January before cutting it by 100 basis points in June.

This month the bank maintained the rate at 11 percent, citing a possible spike in food costs as justifying its caution.

"Liquidity has improved from last week but still not to sufficient levels and the coming Treasury bill auction will also take out more money from the market. I don't see a chance for the dollar," said Robert Mpuuga, trader at Housing Finance Bank.

The central bank is due to sell 90 billion shillings worth of Treasury bills of various maturities on Wednesday.

Mpuuga said there was a possibility the debt sale would bring in dollars via the participation of offshore investors, potentially offering further support to the local currency.

Source: http://news.yahoo.com/ugandan-shilling-buoyed-low-dollar-demand-more-gains-122343335.html

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