Ugandan shilling weaker on central bank liquidity injection

KAMPALA (Reuters) – The Ugandan shilling eased on Tuesday, undermined by an injection of local currency into the market by the central bank and was seen trading with a bearish bias this week.

At 0838 GMT commercial banks quoted the shilling at 3,005/3,015, weaker than Monday’s close of 3,000/3,010.”There was liquidity tightness but the central bank injected shillings which has pushed the unit lower (weaker),” said David Bagambe, trader at Diamond Trust Bank Uganda.

The central Bank of Uganda conducted a reverse repurchase agreement (reverse repo), injecting 296.5 billion shillings ($99 million) into the money market.Reverse repos make it cheaper to build dollar positions.

The shilling has largely traded on a weak footing since January, sapped by the dollar’s global strength, strong corporate dollar demand and jitters over the east African nation’s large current account deficit.Uganda’s current account deficit surged to $527.1 million for the quarter ending February this year from a deficit of $431.5 million in the same period last year, BoU data showed.

The local currency is 7.8 percent weaker against the greenback so far this year.Traders expect appetite from importers to typically surge in the last days of the month as various firms look for hard currency to pay for raw material shipments for May.

“The shilling will keep a bearish tone but I don’t see it breaching the support level of 3,015 any time soon,” said Shahzad Kamaluddin, trader at Crane Bank.Kamaluddin said pressure on the shilling could be relieved by this week’s Treasury bond auction which is expected to bring inflows of hard currency from foreign investors.

Yields on Ugandan debt have been rising in recent months on the back of expectations of a surge in government borrowing ahead of next year’s presidential elections.