Uganda shilling eases against US Dollar, auction results eyed

The Ugandan shilling was down 0.2 percent against the dollar on Wednesday, pressured by greenback demand from commercial banks, though some traders said a Treasury bond auction earlier in the day could support the local currency.

At 1137 GMT, commercial banks in Kampala quoted the currency of east Africa's third largest economy at 2,480/2,490, weaker than Tuesday's close of 2,470/2,480.

"Some banks which are low on dollars are building their positions, which has eroded some value (versus) the dollar," said Faisal Bukenya, head of market making at Barclays Bank Uganda.

"But we might see it (shilling) reverse these losses when results are out," he added, referring to Wednesday's debt sale.

The Bank of Uganda auctioned 50 billion shillings ($20.16 million) apiece of two- and five-year Treasury bonds and is due to release the results of the tender later in the day.

Some analysts had expected demand for shillings from foreign investors ahead of the auction to buoy the currency but Bukenya said that was likely to happen only on Thursday, when successful bidders must settle accounts with the central bank.

Partly to keep Uganda's high-yielding debt attractive to foreign buyers, the central bank left its key lending rate unchanged at 21 percent in May for a second consecutive month, despite a fall in inflation.

Uganda's inflation slowed in April to 20.3 percent from March's revised 21.1 percent and market analysts say further drops are likely this month, potentially maintaining high offshore appetite for the country's debt.

"The market will get a clearer direction after results are out but the local unit might edge up a bit" said Ahmed Kalule, trader at Bank of Africa.

Reuters
23-May-2012