KAMPALA: The Ugandan shilling weakened on Wednesday due to dollar demand by manufacturing and energy firms, but expected inflows from offshore investors could help it regain some lost ground.
At 0918 GMT commercial banks quoted the shilling at 2,655/2,665, weaker than Tuesday's close of 2,645/2,655.
"Energy and manufacturing firms are coming in with strong appetite which is pushing the shilling (weaker)," said Ahmed Kalule, trader at Bank of Africa.
Hard currency inflows from offshore to buy government debt and an expected mop up of excess liquidity by the central bank could offer support for the local currency, traders said.
Draining excess liquidity supports the local currency by making it more costly to hold onto dollar positions.
"The central bank is coming in with a repo, and some flows will be coming in from the auction... I see some of these losses being revered," Kalule said.
On Monday, the central bank or Bank of Uganda took out 303 billion shillings ($114.34 million) via a seven-day repo.
The bank was due to announce results of a Treasury bond auction later on Wednesday, in which a combined total of 180 billion shillings worth of two and five-year bonds were up sale.
The central bank was likely to make more frequent and larger liquidity mop-ups in the days ahead to keep a tight lid on liquidity, a trader from a leading commercial bank said.
"I think the central bank is keen to keep the shilling below the psychological level of 2,700," the trader said.
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