Weaker bias expected for shilling after liquidity move

KAMPALA - The Ugandan shilling was flat on Wednesday in thin trading although an injection of liquidity by the central bank was likely to give the local currency a bearish tone.Commercial banks quoted the currency of east Africa's third-largest economy at 2,520/2,530, unchanged from Tuesday's close.

"There isn't much activity in the market although Bank of Uganda has done a reverse repo which might push the shilling a little weaker," said Ahmed Kalule, trader at Bank of Africa.

The central Bank of Uganda said it has injected 66 billion shillings into the market using reverse repurchase agreements at a weighted average of 12 percent.

Kalule said it was possible the shilling's vulnerability could be cushioned by negative sentiment generally towards the U.S. dollar after tepid U.S. jobs data released on Tuesday.

Weak demand for dollars from corporate firms as a result of a tight monetary policy stance has kept the shilling largely on an even keel this year.

The central bank this month maintained its policy rate at 12 percent from September, a decision money market analysts expect will keep borrowing costs high and slow the flow of credit.

"Since we don't have a Treasury auction this week I expect a tight inflows side with the shilling holding onto the 2,515-2,525 range," said a trader at a leading commercial bank.

Dollar inflows from offshore investors buying government debt helped the shilling post sharp gains last week before interbank demand pulled it back.