Ugandan shilling firms vs dollar, seen weakening

trendsKAMPALA, June 18 – The Ugandan shilling strengthened slightly on Monday, helped by muted dollar demand,

but a tapering off of offshore investment in government securities was forecast to keep the local currency on a bearish

tone in the days ahead.

 

At 0936 GMT, commercial banks in Kampala quoted the currency of Africa’s leading coffee exporter at 2,485/2,495, a touch stronger than Friday’s close of 2,490/2,500.

 

 “Demand for dollars from the corporates is low which had given some little support to the shilling,” said Faisal Bukenya, head of market making at Barclays Bank.

 

 The shilling should hold stable this week … though the general market sentiment suggests a bias in the direction of

weakening because of expected weak participation of offshore people in debt auctions.”

Uganda’s shilling gets some support from offshore investors into its government securities, which supplement dollar flows

from exports like tea, coffee and tourism.  

 

Last week, the government raised withholding tax on earnings

from investment in Treasury bonds and bills to 20 from 15percent and analysts say the measure will make Ugandan debt less attractive to offshore buyers.

 

On Wednesday Bank of Uganda (BoU) is scheduled to sell three- and 10-year Treasury bonds each worth 100 billion

shillings and traders say they do not expect much offshore bidding for the two papers.

“I think the shilling will remain leaning on a weaker footing in the medium term because of the tax measure,” said a

trader at a leading commercial bank.

“But also the general economic weakness and central bank vows of intervention mean the shilling is unlikely to weaken

past 2,520 levels.” 

 

Uganda’s economy is expected to slump in the fiscal year ending June 30, expanding at 3.2 percent from the previous

year’s 6.7 percent although BoU says growth will rebound in 2012/13 to between 5 to 6 percent.

 

Source: Reuters Africa