Shilling firms ahead of rate decision

Ugandan shilling firms ahead of rate decision

The Ugandan shilling firmed on Tuesday as interbank players bet against the dollar on expectations of a rate hike and after the first U.S. government shutdown in 17 years.

At 1126 GMT commercial banks in the capital Kampala quoted the currency of east Africa's third-largest economy at 2,550/2,555 to the dollar, up from Monday's close of 2,555/2,560.

Surging food costs pushed Uganda's inflation to a 13-month high of 8 percent last month, from August's 7.3 percent, leading to wide expectation among traders the central bank will further tighten its policy stance when its monetary policy committee meets on Wednesday.

"The bias in the interbank has remained in favour of the shilling in light of the rate expectations," said Faisal Bukenya, head of market-making at Barclays Bank.

"The weakening of the dollar against major currencies is also helping the shilling."

U.S. Federal government agencies have been directed to cut back services after lawmakers failed to pass a temporary spending bill before a midnight deadline. The impasse has caused broad dollar weakness.

The Ugandan shilling has largely traded in a stable range of 2,550-2,600 this year, in part propped up by a relatively tight policy stance which kept consumer spending weak.

A rate hike is seen as likely to keep consumer demand depressed and appetite for greenbacks from importers low.

Stephen Kaboyo, managing director at Alpha Capital Partners, said the central bank's rate decision would have to balance the need to nurture growth by boosting bank lending against the risk of rising inflation. Reuters