Uganda shilling stable against US Dollar 21-May-2012
The Ugandan shilling traded flat against the dollar for a second straight session on Monday, underpinned by a liquidity squeeze, but traders said greenback flows into a Treasury auction this week were likely to strengthen it. At 0814 GMT commercial banks in Kampala quoted the currency of Africa's leading coffee exporter at 2,470/2,480, unchanged from Friday's closing.
"The market is low on liquidity which has kept the shilling stable," said Shahzad Kamaluddin, a trader at Crane Bank.
"Going into this week I think the shilling will play in range although offshore investors might give it a little support."
The Bank of Uganda is due to auction on Wednesday two and five-year Treasury bonds worth 50 billion shillings ($20.2 million) each.
Kamaluddin said yields on Uganda's securities were still relatively high which should spur strong offshore interest in the auction.
The central bank this month maintained its key lending rate at 21 percent for a second consecutive time from April despite a fall in inflation.
Although the bank cited high food costs and worries over a hazy oil price outlook, analysts said the decision was also motivated by a desire to keep Ugandan debt attractive for offshore investors and the shilling supported.
Market players have said confidence in the shilling was waning over the euro zone debt woes but Shreedh Aran, head of treasury at Diamond Trust Bank Uganda, said foreign investors buying Ugandan debt would keep the shilling stable.
"The interest in Ugandan debt will be more key than the crisis in the euro zone ... inflows from offshore investors might push it up (shilling) slightly," he said. At its last auction on March 28, the two-year paper returned a weighted average yield of 15.6 percent. The five-year bond yielded 15.9 percent at its last sale on February 29.