Uganda shilling stable against US Dollar 21-May-2012

The Ugandan shilling traded flat against the dollar for a second straight session on Monday, underpinned by a liquidity squeeze, but traders said greenback flows into a Treasury auction this week were likely to strengthen it.
At 0814 GMT commercial banks in Kampala quoted the currency
of Africa's leading coffee exporter at 2,470/2,480, unchanged
from Friday's closing.

"The market is low on liquidity which has kept the shilling
stable," said Shahzad Kamaluddin, a trader at Crane Bank.

"Going into this week I think the shilling will play in
range although offshore investors might give it a little
support."

The Bank of Uganda is due to auction on Wednesday two and
five-year Treasury bonds worth 50 billion shillings ($20.2
million) each.

Kamaluddin said yields on Uganda's securities were still
relatively high which should spur strong offshore interest in
the auction.

The central bank this month maintained its key lending rate
at 21 percent for a second consecutive time from April despite a fall in inflation.

Although the bank cited high food costs and worries over a
hazy oil price outlook, analysts said the decision was also
motivated by a desire to keep Ugandan debt attractive for
offshore investors and the shilling supported.

Market players have said confidence in the shilling was
waning over the euro zone debt woes but Shreedh Aran, head of
treasury at Diamond Trust Bank Uganda, said foreign investors
buying Ugandan debt would keep the shilling stable.

"The interest in Ugandan debt will be more key than the
crisis in the euro zone ... inflows from offshore investors
might push it up (shilling) slightly," he said.
At its last auction on March 28, the two-year paper returned
a weighted average yield of 15.6 percent. The five-year bond
yielded 15.9 percent at its last sale on February 29.

Reuters
21-May-2012