High Dollar demand from the Uganda Energy and Manufacturing Sectors Weigh in on Shilling

23-March-2012

KAMPALA UGANDA - The Uganda shilling held steady on Friday but end-of-month dollar demand for dollars from the manufacturing and energy sectors is seen weighing on the local currency with greenback supplies tight, traders said.

"Activity is low on both counters so the shilling is oscillating in a narrow range," said Faisal Bukenya, head of market making at Barclays.

"Next week we expect heavy demand (for dollars) mostly from energy and manufacturing sectors which should tip the shilling."

At 0727 GMT commercial banks in Kampala quoted the local currency at 2,485/2,495, matching Thursday's closing price.

The shilling plummeted to a 2012 low of 2,620 earlier this month after the central bank surprised the markets by cutting its key policy rate for March, even though the east African country's inflation remaining above 25 percent.

"Next week we expect the shilling to remain on a weakening trend as end-of-month (dollar) demand continues," KCB Uganda said in a market briefing.

The bank said it expected the local currency to trade between 2,460 and 2,520.

Market players said a sustained increase in Ugandan debt yields, which edged up this week having steadily fallen since early February, could spur a return of offshore investors and support the shilling.

Rates went up across all tenors at a Treasury bill auction this week with the 91-day note inching up to 17.4 percent from 17.2 percent at the previous auction.

$1 = 2487.5000 Ugandan shillings

Reuters