Weak demand for Treasury bills hurts shilling

By Vision Reporter

The shilling was stable against the dollar on Friday but dwindling offshore appetite for government debt and a slowdown in dollar inflows from coffee exporters are seen pressuring the currency this week.

Commercial banks in Kampala quoted the currency at 2,520/2,530, unchanged from Thursday’s close.

Yields on Ugandan debt have been falling since early this year, reflecting the impact of the Central Bank’s monetary policy easing cycle.

At a Treasury bill auction last week, the weighted average yield on the 91-day paper dropped to 10.05%, compared with a 2012 high of 23.4% in January.

“There’s a significant reduction in the number of new offshore investors coming into Uganda’s debt market so the amount of dollars coming in is not much,” said Denis Mashanyu, a trader at Standard Chartered Bank.

“So the shilling still faces a depreciation risk although it will be moderate because the yield decline is possibly nearing the bottom,” he said.

The Bank of Uganda has cut its key lending rate by six percentage points since May to 15%.

Analysts say more cuts may still be in the pipeline as inflation falls towards single digits.

Market players said the local currency would range around 2,500 to 2,550 this week.

“We are also seeing a tailing off in inflows from coffee exporters because the harvest lately has not been good.

“That is also likely to bring some pressure on the shilling,” said Thaib Lubega, a trader at Stanbic Bank.

Coffee is Uganda’s top commodity export, but shipments fell 25% last month from a year earlier due to slowingproduction in some areas.

An exit of offshore investors from debt market is seen pressuring the Ugandan shilling against the dollar over the next week, traders said last week.