Shilling edges up as dollar demand eases

THE Ugandan shilling edged up slightly on Tuesday as dollar demand from banks eased and confidence in the local currency rose in anticipation of inflows from offshore traders seeking to buy government debt.

At 0846 GMT commercial banks in Kampala quoted the currency of east Africa's third-largest economy at 2,562/2,572, a touch stronger than Monday's close of 2,565/2,575.

"The huge appetite that the market has been having from banks has declined and that has given support to the shilling," said Faisal Bukenya, head of market making at Barclays Bank.

Banks have shown enormous demand for the dollar in recent days as some prepare to pay dividends for 2013 to shareholders based offshore.

Most big banks in Uganda have large components of foreign shareholders.

The local currency is down 1.6 percent against the greenback so far this year, and its medium term prospects are seen as dim, undermined by jitters over the potential impact of aid cuts by western donors over Uganda's enactment of an anti-gay law.

"Supposing the demand from banks has run its course and tomorrow's auction draws good amounts of dollars, I would think we'll see the shilling extend gains back to 2,550 region," said a trader at a leading commercial bank.

A total of 180 billion shillings ($70 million) worth of Treasury bonds of two- and five-year tenors are due for auction on Wednesday.

Reuters