Uganda shilling firms slightly vs dlr, eyes on key data

Uganda’s shilling firmed slightly against the dollar on Monday due to tight local currency liquidity with traders saying it could gain if the central bank cuts its key lending rate.

Uganda’s shilling firmed slightly against the dollar on Monday due to tight local currency liquidity with traders saying it could gain if the central bank cuts its key lending rate.

Uganda’s statistics office is due to release October’s consumer price index data on Wednesday followed on Friday by the central bank’s announcement of its benchmark rate for November.

At 1055 GMT commercial banks quoted the currency at 2,581/2,591 to the dollar, from Thursday’s close of 2,585/2,595.     Ugandan markets were closed on Friday for a public holiday.

“Local currency liquidity is scarce and that’s supporting it (shilling) against the dollar,” said Steven Lagat, trader at Stanbic Bank. “However, for a more solid idea of where the shilling is likely to go in the forthcoming days, the market is waiting for inflation and the (central bank rate).

“Some analysts have said the Bank of Uganda is likely cut its lending rate by about 100 basis points from October’s 13 per cent.

Money market players say a less aggressive cut in the rate will help underpin a recovery in yields on Ugandan debt and restore a measure of confidence in the local currency.

The central bank is due to auction 85 billion shillings US$32.82 million) worth of Treasury bills on Wednesday and the markets will be keen to see whether the yields inch up again after breaking a months-long losing streak at the last auction.

At the last sale on October 17 the benchmark 91-day paper fetched a weighted average yield of 9.69 percent, slightly up from 9.66 percent at the previous auction.

“I think a slowdown in the pace of policy easing by the central bank will please the markets,” said a trader at a leading commercial bank.

“Because such a move would dampen some of the worries on debt yields...if that turns out to be the case with November’s CBR, I see the shilling consolidating its gains.”

 

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