Ugandan shilling slightly depreciates

ECONOMY | SHILING UPDATE

The Uganda shilling drifted in narrow range after hitting a near two-year low as a result of the Central Bank intervention that was triggered by demand pressures last week.

Market players remained square to long, taking a cautious approach as political events in Kenya unfolded.

The shilling was trading at 3,648/3,658 buying and selling respectively at most banks on Thursday afternoon, slightly down from 3,647.83/3,657.83 in the first trading session of the day.

Hassan Jjemba, a trader at Mukwano Arcade in Kampala, attributed the depreciation of the shilling to corporate buyers rushing to meet end-of-month tax obligations.

He added that the shilling is also undermined by market expectations of the slowdown in hard currency flows.

In the interbank money market, there was sufficient liquidity, with overnight funds holding steady at 7% while 1 week funds traded at 10%.

A report by Alpha Capital Markets indicates that in the fixed income space, 130 billion was on offer for the Treasury bill auction. Yields continued on the downward trajectory as investors' appetite remained high against reduced offer size. Rates came out at 8,717%, 9.026% and 9.315% for 91,182 and 364 days, respectively.

"In the coming days, the shilling is likely to remain in bearish territory as the effects of the Central Bank intervention wear off. However, a bit of support could come from end month flows," Stephen Kaboyo, a financial expert analyst, stated.

In the regional markets, the Kenya shilling weakened and hit the lowest level since August and traded at 103.75/55 as market players were seen building positions in advance over concerns of potential violence during the repeat elections. Markets closed mid-week.

In international markets, the US dollar held firm, supported by the prospects of US tax reforms, as well the narrow down of two likely candidates for next Federal Reserve Chair. Markets perceptions for both Jerome Powell and John Taylor indicate that they could steer policy in a more hawkish direction.