Ugandan shilling weaker after central bank buoys liquidity

Commercial banks quoted the shilling at 3,300/3,310, weaker than Tuesday’s close of 3,295/3,305.”The sentiment is generally biased against the shilling and the liquidity scarcity has eased after BoU did a reverse repo,” said Isaac Iga, chief dealer at Orient Bank, referring to the Bank of Uganda or central bank. It was not yet clear how much the central bank injected into the market via the seven-day reverse repo. Strong demand from banks and corporate firms, a widening current account deficit and a surge in public spending ahead of next year’s presidential elections have kept the shilling largely on a weak footing this year.

So far this year the local currency has lost 16 percent of its value against the dollar and its outlook is still seen as bearish despite central bank’s action to increase its benchmark rate at two consecutive meetings to 13 percent.

The BoU has tightened its policy stance to prevent the shilling’s depreciation from fuelling inflationary pressures.

Figures from statistics office showed inflation held steady year-on-year in June at 4.9 percent from May.