KAMPALA - The Ugandan shilling weakened modestly on Friday on the back of rising demand for the dollar from commercial banks and energy businesses, but an expected squeeze on liquidity was seen supporting the currency
Commercial banks quoted the currency at 2,558/2,568, weaker than Thursday's close of 2,555/2,565.
"There's a lot of appetite for the dollar in the interbank (market) which has weakened the shilling," said Ahmed Kalule, trader at Bank of Africa.
"We anticipate some tightening in liquidity early next week so we're likely to see the shilling pull back from losses we have seen today," he said.
The central bank on Friday mopped up 227 billion Ugandan shillings ($89 million) from the market via a seven-day repo.
The shilling is down 1.6 percent against the dollar so far this year but analysts said the central bank's decision to hold interest rates steady at 11.5 percent at its April meeting could provide support despite the halting of some aid.
Western donors have suspended or diverted aid and loans worth about $118 million after the enactment of an anti-gay law.
"I have seen substantial buying (of dollars) from energy and manufacturing sectors," said Brenda Akumu, trader at KCB Uganda, adding that energy firms were stocking up.