Friday, 31 July 2015 17:06
KAMPALA: The Ugandan shilling was weaker against the dollar on Friday, sapped by a surge in interbank demand for the greenback after the central bank injected liquidity this week.
At 0954 GMT commercial banks quoted the shilling at 3,425/3,435, weaker than Thursday’s close of 3,410/3,420.
Bank of Uganda this week conducted two reverse repos, pumping hundreds of billions of shillings into the interbank to try to ease up a liquidity squeeze.
“The market is high on liquidity and there’s interbank activity which has weakened the local unit,” said Ali Abbas, a trader at Crane Bank.
Abbas said there was also limited end of month corporate demand for the US currency.
Manufacturers typically buy greenbacks at the end of the month to pay for raw material shipments for the next month.
The local currency is down 19.2 percent in the year todate and its medium term outlook is seen as bearish, undermined by market fears over possible capital flight and the impact of surging government spending ahead of elections next year.
Stephen Kaboyo of Alpha Capital Partners said a combination of scant greenback inflows, concerns over a widening current account deficit and “anticipated fiscal disruptions have created a negative sentiment for the shilling.
“Market outlook suggests that the shilling is likely to remain bearish as market players take advantage of the adequate liquidity conditions to build dollar positions,” Kaboyo said.
Traders anticipate political pressures to push up government spending ahead of elections next year and potentially fuel a surge in the fiscal deficit.
The country’s budget deficit is seen rising to 7 percent in 2015/16 (July-June) fiscal year from 4.5 percent in the previous period.
