KAMPALA: The Ugandan shilling firmed on Tuesday as corporate demand for dollars slowed, but investors were reluctant to make any sharp moves before a budget announcement later this week.
At 0824 GMT, commercial banks quoted the shilling at 2,555/2,565, up from Friday's close of 2,560/2,570. Uganda's markets were closed for a holiday on Monday.
"When the shilling hit 2,570 levels last week most corporate buyers thought (the dollar) was getting a little expensive," said Faisal Bukenya, head of market making at Barclays Bank.
"We have seen demand come down ... but ahead of the budget I think we're likely to see a stable tone."
Uganda's finance minister is due to present the budget on Thursday for the 2014/15 financial year that starts on July 1.
Traders said there was still some pressure on the shilling in the medium term, in part because the Bank of Uganda, the central bank, last week unexpectedly cut its key lending rate by 50 basis points to 11 percent.
The shilling is down 1.4 percent on the year to date and has been largely propped up by inflows from offshore investors buying Ugandan debt and by BoU mop-ups of excess liquidity. The rate cut may make that debt less attractive to investors.
"Due to the monetary policy easing and current account and budget deficits, the shilling will continue ... to depreciate mildly against the dollar, by 1.0 percent on average in the medium and long term," Amsterdam-based frontier markets research firm Mantis said in a June report.
But it said lower interest rates would boost growth.
On June 11, a total of 115 billion shillings ($55 million) worth of Treasury bills of all maturities will be auctioned.
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