Energy sector dollar demand weakens Ugandan shilling

KAMPALA - The Ugandan shilling weakened on Tuesday, undermined by higher dollar demand from energy importers, but its range was seen as limited pending the government's budget presentation.

At 0903 GMT, commercial banks quoted the currency of Africa's largest coffee exporter at 2,585/2,595, weaker than Monday's close of 2,580/2,590.

"Demand from oil importers has weakened the shilling a bit, but broadly speaking, appetite for the dollar is generally poor," said Ahmed Kalule, trader at Bank of Africa.

"So we expect the shilling to largely trade in the 2,570-2,600 range because there's a bit of scepticism among market players who are not sure what the budget will throw up."

Finance Minister Maria Kiwanuka is expected to present the country's budget for the 2013/14 financial year (July-June) to parliament on June 13.

Market participants said any new tax measures to shore up revenue could deter investment thus weighing on the currency.

"Tight inflows and negative sentiment toward the budget are likely to keep the shilling biased toward weakening," said Shahzad Kamaluddin, trader at Crane Bank.

Money market analysts expect this month's central bank rate cut to hold down the shilling.