Shilling sheds value as interbank demand piles

The shilling shed some value to trade at 3,330/40 buying and selling respectively at Midday on Monday due to high dollar demand on the interbank market. The interbank is where banks trade different currencies.

The surge in interbank activity reversed gains last week as the shilling closed at 3,319/29 buying and selling respectively underpinned by dollar inflows from non-governmental organizations, commodities exporters and remittances from the country's citizens abroad.

On Friday, the shilling was supported by a central bank mop-up of excess local currency liquidity from the interbank market using a six-day repurchase agreement.  Last week, the Central Bank raised sh195b in the Treasury bill auction held on Wednesday, 11th May 2016.

Bank of Uganda will offer sh185b in the Treasury bond auction scheduled for Wednesday, 18th May 2016, this week. BoU will reopen a 2-year bond worth sh85b and issue a new 5-year bond worth sh100b.

A report by Crested Capital indicates that demand on these tenors remains strong and as a result, yields are likely to remain stable in their current trading range of 15.75% to 16.10% range for the 2-year and 15.85% to 16.30% range for the 5-year.

"Yields on treasuries are getting lower. And for that reason we predict that the Bank of Uganda will lower the Central Bank Rate (CBR) by 1 percentage point when the monetary policy committee meets next month," Faizal Bukenya, the Barclays Bank head of market making said.