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Uganda shilling slips, seen under pressure from inflation: 7-May-2012

The Ugandan shilling stumbled against the dollar on Monday and traders said the shilling could remain under pressure due to persistently high inflation that could curb demand for government securities.

At 1000 GMT, commercial banks posted the shilling at
2480/2490 per dollar, 0.4 percent weaker than Friday's close of 2460/2470. It had earlier touched a low of 2490/2500 due to profit-taking, traders said.

"There was demand for dollars from petroleum guys and
manufacturing," said Ahmed Kalule, a trader at Bank of Africa.

The shilling hit a seven-week high of 2440/2450 on Friday after the central bank's decision to hold its policy rate for the second straight month at 21 percent.

"But the shilling is likely to be weak because of negative returns on bills and bonds," Kalule said.

Like other frontier markets, Uganda's currency receives
support from investments into government securities from abroad, as investors pursue high yields.

The yield on the 91-day Treasury bill inched down to 18.0 percent in last week's auction from 18.1 percent earlier, while inflation remains above 20 percent.


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