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Ugandan Shilling Dips After Central Bank Announces Increase In Dollar Purchases
By Elias Biryabarema
20/08/2013
KAMPALA (Reuters) - - The Ugandan shilling weakened on Tuesday after the central bank announced that it would increase its daily dollar purchases to build reserves, although the currency drew some support from short covering in the interbank market.
At 1119 GMT commercial banks quoted the currency of east Africa's third-largest economy at 2,590/2,600, weaker than Tuesday's close of 2,565/2,575.
"Yesterday the central bank said it would increase the amount of dollars it purchases for its reserve build-up from $2 million to $3.1 million," said Shahzad Kamaluddin, a trader at Crane Bank.
"That triggered negative sentiments associated with the hike in demand (for dollars) which has subsequently undercut the shilling ... but we also have some players buying to cover short positions."
Uganda's export sector, dominated by a few agricultural commodities, is weak and the country tends to rely partly on hard currency inflows in the form of aid to build its reserves and support the shilling.
Much of that aid however, mostly from western donors, was suspended last year over graft concerns and the central bank now relies on open market hard currency purchases to build its reserves.
Shahzad said offshore investor demand for dollars was also adding pressure on the shilling.
"There's also an anticipation of end-month demand for greenbacks in the market and that's undermining confidence in the shilling," said Thaib Lubega, trader at Stanbic Bank.
Much of the demand for hard currency at the end of the month comes from fuel importers and manufacturers looking to pay for the next month's stocks of fuel and industrial components.
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