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Uganda shilling holds steady against Dollar - 27-March-2012


The Uganda shilling held its ground against the dollar on Tuesday but possible month-end demand for dollars from telecoms, manufacturing and energy sectors was expected to weaken the currency.

Traders said a two-year Treasury bond auction worth 100 billion shillings ($40 million) scheduled for Wednesday could cushion the shilling if it draws in foreign investors.

At 0809 GMT commercial banks in Kampala quoted the shilling at 2,500/2,510, unchanged from Monday's close.

"The outlook is of a depreciation risk for the shilling when that demand (for dollars) comes through this week," Robert Nyehangane, head of treasury at Housing Finance Bank, said.

The currency of the prospective global top-50 crude oil producer tumbled to its 2012 low of 2,620 on March 6, a few days after the central bank surprised investors by cutting its key rate despite inflation remaining above 25 percent.

Bank of Uganda (BoU) cut its policy rate for March to 21 percent from February's 22 percent, saying it was optimistic inflation would fall to single digits by December this year.

Analysts say rates on Ugandan debt need to rise well above 20 percent to spur the appetite of offshore investors. The yield on the benchmark 91-day Treasury bill edged up to 17.4 percent at the last auction from 17.2 percent.

"This week's two year Treasury bond auction will keenly be watched for any signs of returning off shore interest," Standard Chartered Bank said in a market brief.

Faisal Bukenya, head of market making at Barclays Uganda, said he expected yields at the auction to inch up in part because liquidity was low in the market.


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