KAMPALA: Uganda's shilling fell 0.8 percent on Friday as local banks stocked up on dollars to make dividend payments and the threat of further aid cuts over new anti-gay legislation weighed on the currency.
At 1015 GMT commercial banks quoted the shilling at 2,555/2,565, weaker than Thursday's close of 2,535/2,545.
"The shilling is being pinned back mainly by buying pressure from banks that are in the process of paying dividends," said Faisal Bukenya, head of market making at Barclays Bank.
Ugandan banks typically pay dividends to their foreign shareholders in dollars.
"Overall market sentiment has also remained negative toward the local unit since the announcement of aid cuts," Bukenya said. Losses were stemmed by the central bank draining shilling liquidity from the money market with a seven-day repurchase agreement, traders said.
"The shilling is likely to remain in bearish territory," said a market note from Alpha Capital Partners, a fund manager. "While supply of foreign exchange is likely to improve on account of end-month conversions by NGOs, (non-government organisations) this may not be substantial enough to cause a trend reversal."
Donors including the World Bank and United States have withheld or diverted aid totalling almost $120 million and traders say the market fears more cuts could follow.
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