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Ugandan shilling stable against the dollar 4-06-2012

The Ugandan shilling held steady against the dollar on Monday after the central bank pledged on Friday to act to curtail any pressures from the euro zone's economic crisis on the shilling.

Like other frontier market currencies, the shilling has come under downward pressure in recent weeks, as investors worried about a possible Greek exit from the euro zone and fled to the dollar.

The Ugandan central bank, which slashed its benchmark lending rate by 100 basis points to 20 percent on Friday to spur private credit growth and boost output, at the same time promised to "act decisively" to prevent the turbulence in the euro zone from exerting undue pressure on the shilling.

The bank has been selling dollars in the market to prop up the currency and on Friday its sale of dollars lifted the shilling from an intraday low of 2,525.

At 0832 GMT on Monday commercial banks quoted the currency of east Africa's third-largest economy at 2,495/2,505, slightly firmer than Friday's close of 2,500/2,510.

"The declaration by the governor that he would act to defend the shilling I think has soaked a great deal of the market fears and kept the shilling floating fine," said Peter Mboowa, a trader at KCB Uganda.

Falling inflation, which hit its lowest level in almost a year in May at 18.6 percent, and a more stable shilling in recent weeks has given the bank room to loosen policy again to support the economy.

Stanbic Bank said in a market report that higher dollar demand that typically emerges at the start of each month was likely to put downward pressure on the shilling but anticipated inflows from coffee exports would provide some cushion.

Robert Nyehangane, head of Treasury at Housing Finance Bank, said the shilling would probably hover between 2,490 and 2,520 this week.

04 June 2012

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