Uganda Shilling fights for own life

Thursday July 21, 2011

KAMPALA-The shilling slipped against the dollar for a second straight session on thin volumes on Tuesday, but some traders said an upcoming Treasury bond auction would offer the currency some support.

Commercial banks in Kampala quoted the local currency at 2,597/2,607 against the dollar, weaker than Monday’s close of 2,580/2,590.

“We’re moving towards the end of month and we normally have a surge in dollar demand, which exerts pressure on the shilling and that’s what we’re seeing now,” said Lucas Ochieng, a treasurer at Orient Bank.

Unprecedented demand for the greenback and tight supply, an ailing shilling in neighbouring Kenya -- the region’s biggest economy -- and speculative trading drove the shilling through a series of record lows in the first half of the year.

It hit an all-time low of 2,710 on June 30 before the Central Bank, flexed its muscles and sold off hard currency, stemming the losses.
“There’s huge demand for the greenback in the interbank (market) which is undermining the shilling now, but it will probably be short-lived,” said Faisal Bukenya, the head of market-making at Barclays Bank.

Bukenya predicted substantial offshore interest in Wednesday’s auction of two-year bonds worth sh85b.

Bank of Africa said in a market report that it saw 2,650 as the next key psychological level.
The Central Bank has shown willingness to sell dollars at the 2,600 level.

“Inflows will not be enough to sustain the consistent and sustained demand from the manufacturing, petroleum and telecom sectors,” Barclay’s Bank said in a financial note it released late to clients on Monday.

The New Vision Newspaper