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Uganda Shilling Remains Unchanged against the US Dollar - 27-April-2012

The Ugandan shilling was flat against the dollar on Friday as the market cautiously awaited April inflation data and a central bank meeting next week, but was vulnerable to downward pressure on expectations the bank will cut interest rates.

April inflation figures are due on Monday followed by Bank of Uganda (BoU)'s rate decision on Wednesday.

At 0852 GMT commercial Banks in Kampala quoted the shilling at 2,505/2,515, unchanged from Thursday's close.

"Depending on how inflation data turns up the sense in the market is that BoU is likely to resume its easing cycle," said a trader at a leading commercial bank.

"So the shilling's overall tone next week is likely to be stable but inclined toward the (weaker) side."

Traders said Bank of Uganda's decision to hold off on further cuts in interest rates this month, and leave base borrowing costs at 21 percent, has helped stabilise the local currency of Africa's leading coffee exporter.

After two consecutive cuts of one percentage point each, BoU this month left the CBR unchanged, saying high food prices and a weak currency still posed inflationary risks despite the consumer price index's steep fall in March.

An unexpected rate cut and a slump in debt yields last month pushed the shilling to its 2012 low of 2,620 on March 6.

Official data shows east Africa's third-largest economy contracted 2.3 percent in the final quarter of 2011 from the previous three months, driven by a 12 percent decline in the industrial sector. It has yet to release first-quarter data for this year.

"I think there's a general slowdown in economic activity lately and it's echoing here in the foreign exchange market," said Faisal Bukenya, head of market-making at Barclays Bank.

"Corporate demand for dollars has remained largely depressed for weeks and that's why the shilling has remained stuck around 2,500 levels for weeks now."

Traders also said a central bank Treasury bill auction next Wednesday could provide some support to the shilling if it attracts offshore investor interest.

A total of 120 billion shillings worth of Treasury bills of all maturities will be on sale.


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