Tuesday, 01 September 2015 16:42
KAMPALA: The Ugandan shilling was a notch weaker on Tuesday, undermined by an ease in local currency liquidity and month-end demand but the an anticipated central bank intervention was seen lifting confidence in the shilling.
At 0911 GMT commercial banks quoted the shilling at 3,670/3,680, from Monday’s close of 3,660/3,670.
Shahzad Kamaluddin, trader at Crane Bank, said Bank of Uganda (BoU)’s injection of 134 billion shillings ($ 36.51 million) into the market on Friday via a reverse repurchase agreement had helped ease the scarcity of shillings. Kamaluddin, though, said there was expectation in the market that as the shilling approached the “technical level” of 3,700 the central bank would intervene and sell dollars again. “Players have this level in their mind.
I think we could see (dollar) selling pressure starting soon which could strengthen the shilling a bit.”
Last week BoU has sold dollars, the latest in a series of interventions this year to try to buoy the shilling whenever it has come under undue depreciation pressure.
The benefits, however, have often been short-lived as investors continue to worry about Uganda’s growing trade deficit and possible capital flight ahead of elections next year.
The weak local currency, too, has blunted offshore investor appetite for Uganda’s otherwise high-yielding debt, limiting flows of hard currency in the country and clouding outlook for the shilling, traders say.
A note from Alpha Capital Partners said although inflationary pressures slowed down in August, potentially triggering a pause in BoU’s policy tightening, “we’re not yet out of the woods.”
There was still concern the depreciation of the shilling, which is 24.6 percent weaker so far this year, “could degenerate into an inflation spiral in the coming months,” once the full effects of the weakening begin passing through.
