Uganda shilling gains against Dollar

THE Uganda shilling extended its rally against the dollar on Tuesday as banks sold greenbacks to bolster their local currency positions on fears consumer spending on imported goods will slow due to runaway inflation.

Commercial banks quoted the shilling at 2,731/2,741, nearly 2 percent stronger than Monday's close of 2,785/2,795.

"When the market opened it was scramble and chaos with banks selling (dollars)," said Faisal Bukenya, head of market making at Barclays Bank Uganda.

"They (banks) want to strengthen their shilling reserves because importers' demand for the dollar is down, which is undermining confidence in (the dollar)," said Bukenya.

Analysts said the Bank of Uganda (BOU)'s monetary policy tightening had kicked in, dampening expectations of increased consumer spending during the peak holiday season in December and forcing importers to cut back on their orders.

The central bank has been running a tight monetary policy stance since July when it introduced its benchmark Central Bank Rate (CBR) to try to tame high inflation and support a weak shilling.  

Uganda's year-on-year headline inflation leapt to 28.3 percent in September, up from 21.4 percent in August, pushing BOU to raise the CBR by 4 percent to 20 percent in October.

Traders said they expected the shilling to trade in the 2,740/2,800 range over the next few days.

Reuters