Ugandan shilling steady, seen weaker after Christmas holiday

KAMPALA (Reuters) - The Ugandan shilling was unchanged against the dollar on Friday but traders said they expected it to weaken once more active trading resumed next year.

At 1238 GMT commercial banks in Kampala quoted the currency of east Africa's third-largest economy at 2,645/2,655, unchanged from Thursday's close.

"The market is pretty flat because (dollar) demand is not there but going into 2013 we anticipate some small depreciation for the shilling," said Shahzad Kamaluddin, trader at Crane Bank.

"Considering the negative factors like a growing current account deficit, aid cuts and the central bank's loose policy stance I reckon the shilling will weaken when business resumes."

The shilling has lost 6.4 percent against the dollar this year but it has been strengthening since late November, lifted by decreased demand for the hard currency ahead of the year-end festivities.

Traders say the central bank's cuts to its key lending rate will keep yields on Ugandan government securities low and possibly erode the interest of offshore investors - whose dollar flows partly support the shilling's exchange rate.

At the last auction on November 29, the yield on the benchmark 91-day Treasury bill was unchanged from the previous auction at 9.8 percent.

Bank of Uganda is due to sell 110 billion shillings' worth of Treasury bills of all maturities on December 27.

The bank cut its key lending rate by 50 basis points to 12 percent this month, extending its policy easing cycle aimed at resuscitating economic growth.

"Because of low demand, market sentiment favours limited shilling appreciation for the remaining trading sessions of this year beyond which it (shilling) will come under pressure," said a trader at a leading commercial bank.

The central bank says Uganda's projected growth rate of about 4.3 percent for the 2012/13 (July-June) fiscal year is below the country's potential growth rate of around 7 percent.

Source: http://news.yahoo.com/ugandan-shilling-steady-seen-weaker-christmas-holiday-141652651--finance.html

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