Uganda Shilling steadies against major foreign currencies

Wednesday, 17th August, 2011

KAMPALA-The shilling was barely moved against the dollar on Tuesday, with interbank demand for dollars seen sluggish, and traders said it was likely to trade in a narrow range over the next few days.

Commercial banks quoted the shilling at 2,795/2,810, from Monday’s close of 2,790/2,810.

“We’ve seen some minimal demand coming through in interbank but no major bids of the kind to move the market, and we are likely to keep range-bound in the days ahead,” said Faisal Bukenya, the head of market making at Barclays Bank.

The shilling came under considerable pressure last week, forcing the Central Bank to sell dollars on Friday after a surge in dollar demand sent the shilling tumbling to a record low of 2,827.9.

A trader with a leading commercial bank said the local currency would remain on a downward trend against the dollar in the medium term, undermined by weak exports receipts.

“Central Bank interventions can only slow down the rate of depreciation but ultimately the losing streak that has characterised the shilling for months will continue,” said the trader. On Monday, the shilling inched down against the dollar, and traders said it was likely to trade in a narrow range over the next few days with a bias for weakening, trading at 2,790/2,810 against the dollar, from Friday’s close of 2,770/2,800.

The Monday pressure on the shilling came from the manufacturing sector.

An upswing in demand for dollars from the energy sector sent the shilling down to an intraday low of 2,827.9 per dollar on Friday before Central Bank intervention saw it rebound to 2,780.

Some currency analysts had expected the tightening of monetary policy by Bank of Uganda (BOU) to boost the shilling this month as investor demand for dollars tails off and yields on government bonds rise, but this remains to be seen as the shilling keeps setting new record lows.

The Central Bank increased its benchmark interest rate for August to 14%, from 13% in July.

“Though BOU intervened on Friday, we are yet to test new highs. Importers are now faced with the problem of factoring foreign exchange hikes in commodity prices,” Bank of Africa said in a market report.

Reuters