Uganda Shilling stabilises against dollar

Tuesday July 12, 2011

THE shilling was stable against the dollar on Monday amidst slow activity.

Traders said it could trade in a narrow range this week, due to sluggish dollar demand.

Commercial banks quoted the shilling at 2,600/2,620 per dollar, unchanged from Friday’s close.

The shilling slipped through a series of record lows and hit 2,710 against the dollar on June 30, dragged by strong dollar demand and speculative positions, before a Central Bank dollar sale sparked a recovery.

“It is a stable market. We haven’t had any big change from Friday.

“Demand is limited and the shilling is likely to remain in the same narrow range that we saw last week,” said Faisal Bukenya, the head of market making at Barclays Bank.

The Central Bank launched an inaugural benchmark interest rate of 13% and a 5% core inflation target last week in a bid to tame price pressures that pushed inflation to a 17-year high in May.

Analysts, however, say it might take the shilling time to respond but that the central bank’s tight monetary policy stance will allow the currency rally against the dollar to continue over the long run.

“Since the extreme volatility in the market has been largely contained, I don’t see Bank of Uganda intervening this week,” said Lucas Ochieng, a treasurer at Bank of Africa.

A trader at one of the leading commercial banks said the shilling was likely to continue making gains against the dollar since the Central Bank’s aggressive intervention, “has burnt speculators’ fingers.”

The Bank of Uganda is citing the Eurozone debt crisis as the major cause of the turbulent exchange rate.

It said recently that while the US economy was not yet fully on its feet, European economies were battling a meltdown. Because of this, investors holding assets and other investments in euros are converting them into dollars.

This has caused an unprecedented demand for the dollar, making it more expensive internationally.

The New Vision Newspaper