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Uganda shilling broadly steady

Friday, 19th August, 2011

Tight liquidity and slow dollar demand kept the Ugandan shilling broadly steady on Friday although traders expect dollar demand to pick up next week, sending the shilling down.

At 0840 GMT, leading commercial banks in Kampala quoted the local currency at 2,760/2,790 compared with Thursday's close of 2,765/2,785.

"We have tight liquidity in the interbank market and so it's expensive for players to hold onto dollars which is underpinning the shilling's stability at the moment," said Faisal Bukenya, head of market making at Barclays Bank Uganda.

He said the liquidity squeeze was probably caused by corporates using up chunks of their shilling cash piles to clear tax payments at a time when the central bank is tightening policy.

Bank of Uganda raised its benchmark interest rate to 14 percent in August from 13 percent in July to limit inflationary pressures.

"I think the market will maintain its current trading range but if the dollar drops below 2,760 then buyers might be enticed to come in and that could push the shilling south again," Bukenya said.

Stanbic Bank Uganda said in a market report that the local currency was likely to trade in a narrow range for the rest of the session.


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