Ugandan Shilling stable as demand for dollar drops

The Ugandan shilling was stable on Thursday due to low dollar demand and traders said it was seen weakening after a local currency liquidity injection.

At 1203 EAT, commercial banks quoted the shilling at 3,540/3,550, unchanged from Wednesday’s close.

The central bank, Bank of Uganda (BoU), said it was in the money markets to inject an unspecified amount of liquidity using a seven-day reverse repo to ease a scarcity of shillings.

“It’s all quiet in the interbank, demand has pretty much dried up,” said Ali Abbas, trader at Crane Bank.

“After the (reverse repo) auction some players might start exerting demand and pressure the shilling.”

He said BoU’s suspension of its hard currency purchases for the remainder of this week had given the shilling some reprieve.

On Wednesday BoU announced it would not do its daily purchase of dollars for reserve build up for the rest of week. BoU takes out about $5 million from the interbank foreign exchange market via its daily reserves building purchases.

So far this year, the local currency is 22 percent weaker against the greenback and its depreciation has prompted the central bank to tighten its monetary policy to prevent a pass-through to consumer prices.

This week the central bank hiked its lending rate to 16 percent, and traders say they expect the tight monetary policy stance to push up rates on Ugandan debt, which is seen attracting inflows from offshore investors to Ugandan debt.