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Uganda shilling hits 13 month low, central bank sells dollars

uganda-shilling KAMPALA: Uganda's central bank sold dollars in the foreign exchange market for a second time in less than a week on Wednesday to support the shilling after it hit a 13-month low.


The local currency's strength has been sapped by greenback demand from offshore investors in government securities.


At 0941 GMT, commercial banks quoted the shilling at 2,695/2,705 to the dollar, after pulling back from a low of 2,700/2,710, a level that triggered the central bank's intervention on the sell side to soak up the raging demand for greenbacks.


It last traded around the 2,700/2,710 level on Oct. 26, 2011, when it hit 2,717/2,727 to the dollar.


On Tuesday the shilling closed at 2,685/2,695 against the dollar.


"The shilling has been under huge pressure mainly from offshore buyers who are exiting our debt market to invest in other countries with higher yields," Denis Mashanyu, trader at Standard Chartered Bank.


"Although the yields have been edging up, they're still way too low especially when investors have seen levels of as high as 20 percent plus early this year."


The yield on Uganda's benchmark 91-day Treasury bill has been edging up lately, hitting 9.8 percent at the last auction, although it's still way off its 2012 high of over 23 percent in January.


Traders say the Ugandan currency has also been hard hit over the last few days by strong dollar demand from fuel and other importers as they stock up for year-end holiday shoppers.


Aid cuts, too, by western donors over corruption allegations have further dampened the market's confidence in the local currency.


Bank of Uganda is selling on Wednesday Treasury bills worth a total 105 billion shillings ($38.99 million).


Technical analysis of the shilling's 14-day and 50-day weighted moving averages shows it is expected to keep weakening against the dollar in the short term.


Copyright Reuters, 2012


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