Uganda Traders Strike over High Bank Interest Rates
12-Jan-2012
The Uganda shilling was little changed against the dollar on Wednesday and traders awaited the results of a Treasury bill auction and a possible escalation of a strike by traders and shopkeepers.
Bank of Uganda (BoU) is later today due to release results of Treasury bill auction worth 110 billion shillings ($44.8 million) of different maturities. Traders and shopkeepers across the Ugandan capital Kampala and other towns shuttered their businesses for three days beginning Wednesday to protest high interest rates charged by commercial banks.
At 1037 GMT commercial banks in Kampala quoted local currency at 2,450/2,460, the same as Tuesday's close.
"The market is more or less stable and traders are holding their cards waiting to see whether the auction will be heavily oversubscribed and the level of offshore participation," said Ahmed Kalule, dealer at Bank of Africa.
"The strike by traders could also unnerve the markets if it escalates because some of the traders do buy forex so their absence from the market might have some impact."
The traders are demanding that commercial banks stop hiking interest rates on old loans, an action commercial banks say is impossible because they have to raise rates to accommodate the high cost of money.
A tight monetary policy has helped the currency of one of Africa's leading coffee producers to recover 15.4 percent from its record low of 2,901 hit on Sept. 23.
The central bank raised its Central Bank Rate (CBR) for four consecutive months from August last year but paused the policy tightening in December after inflation started easing.
The bank has left the CBR unchanged for December and January at 23 percent following successive slowdowns in the country's inflation in November and December.
"We're waiting to see the results of the auction and I think we're likely to see a firmer direction for the shilling after they (results) are in," said Faisal Bukenya, head of market making at Barclays Bank Uganda.
