KAMPALA - The shilling was stable against the dollar on Tuesday, underpinned by a local currency liquidity squeeze which may be accentuated by a Treasury bill auction today.

Commercial banks quoted the currency of East Africa’s third-largest economy at 2,575/2,585, unchanged from Monday’s close.

“Local currency liquidity is low in the market and we have seen some players liquidating their dollar positions to get some shillings,” said Thaib Lubega, a trader at Stanbic Bank.

“So the shilling is benefiting from that and considering we have an auction tomorrow (today), which will suck out more shillings from the market, I see it assuming a bullish tone in the coming days.”

Bank of Uganda (BOU) is due to sell a total of sh105b ($40.65m) worth of Treasury bills of all maturities.

A series of Central Bank market interventions have helped the shilling to pull back from a sharp slide last week which saw it touch a low of 2,605/2,615 against the dollar on the back of surging greenback demand from offshore investors and local importers.

The local currency has been losing ground against the dollar since late July, undermined by a rollback of higher interest rates put in place last year to battle a surge in inflation.

BOU continued its monetary policy easing cycle this month by reducing its benchmark Central Bank Rate (CBR) to 13% from September’s 15% and has signalled further cuts until growth returns to its full potential.