Uganda Shilling Climbs 3rd Consecutive Day Against US Dollar

4-April-2012

KAMPALA, April 4 (Reuters) - The Uganda shilling climbed for a third consecutive day against the dollar on Wednesday, lifted by offshore investors converting their greenbacks to participate in a Treasury bill auction, and depressed corporate demand for the U.S. currency.

At close of trade at 1300 GMT, commercial banks in Kampala quoted the shilling at 2,480/2,490, stronger than Tuesday's close of 2,490/2,500.

Traders said they expected more gains for the shilling on the back of a local currency liquidity squeeze. It is 1.5 percent stronger than the dollar in the year to date.

The Bank of Uganda sold Treasury bills on Wednesday worth 120 billion shillings ($47.90 million), with the 91-day paper yield edging up to 18.1 percent from 17.4 at the previous auction.

"The shilling has pulled up a little because we've been having conversions from offshore guys looking to pay for their successful bids in the auction," said Ahmed Kalule, a trader at Bank of Africa Uganda.

"(Dollar) supplies from these offshore investors are currently weighing against low corporate demand thus the upward shilling movement."

The local currency has generally strengthened against the dollar since the central bank paused its monetary policy easing cycle on Monday.

After trimming its policy rate by 1 percentage point in both February and March, the central bank left the rate unchanged for April at 21 percent from last month despite a steep fall in inflation.

Uganda's year-on-year inflation dropped to 21.2 percent last month from 25.7 in February but the bank says upward price pressures remain from a weak shilling and high food prices.

"We had anticipated rates to remain in the same range overall which is what happened so I guess that sent an encouraging signal to offshore guys," said Faisal Bukenya, head of market making at Barclays Bank Uganda.

"There's also a shilling liquidity squeeze in the market and that's likely to send it further up (stronger) in the coming days."

A slump in Ugandan debt yields and an unexpected rate cut sent the shilling plummeting to its 2012 low of 2,620 on March 6 but analysts say this month's pause of the monetary easing cycle might spur a recovery. ($1 = 2505.0000 Ugandan shillings)

Reuters