Uganda Shilling Weakens Against Dollar 20-April-2012

The Ugandan shilling traded flat against the dollar on Friday in thin volumes and traders forecast the local currency was likely to edge lower, undermined by month-end greenback demand.

At 0915 GMT commercial banks in Kampala quoted the shilling at 2,510/2,520, unchanged from Thursday's close.

"Today the shilling is expected to trade range bound. However we expect to see a weaker shilling next week as corporates fulfill their month-end demand," said a market brief from Stanbic Bank Uganda.

The local currency has generally stabilised since the central bank paused its policy easing stance after its surprise cut in a key lending rate and a slump in debt yields pushed the shilling to a 2012 low of 2,620 last month.

The Bank of Uganda (BoU) left its benchmark Central Bank Rate (CBR) unchanged at 21 percent this month from March despite a steep fall in inflation, which dropped to 21.2 percent last month from February's 25.7 percent.

Traders also said inflows from offshore investors participating in a Treasury bond auction were likely to offer some support to the shilling.

"If they (foreign investors) take part in significant numbers then their dollars might soak up some of the pressure on the shilling," said David Bagambe, a trader at Diamond Trust Bank.

BoU is scheduled to auction 100 billion shilling ($40 million) worth of three-year Treasury bonds with a fixed coupon of 10.25 percent on Wednesday.

With a weak export base, Uganda relies significantly on foreign investors buying its debt to support its currency against the greenback.

A trader at a leading commercial bank said market confidence in the shilling was also being clouded by mounting conflict between South Sudan and Sudan. South Sudan separated from the rest of Sudan last July under the terms of a 2005 peace deal.

"South Sudan is Uganda's major trading partner and if war breaks out and this trade is severed, the shilling is sure to take a massive hit," he said.

Reuters