KAMPALA: The Ugandan shilling weakened on Friday due to a surge in demand for dollars by manufacturing firms and commercial banks before the central bank's decision on Tuesday that could see the key lending rate cut.
At 0929 GMT commercial banks quoted the shilling at 2,670/2,680, weaker than Wednesday's close of 2,653/2,663.
"I am seeing a lot of appetite from importers like manufacturing firms who want dollars to buy raw materials," said Isaac Iga, chief dealer at Orient Bank.
"But players are also pricing in their expectations of a rate cut." The central bank or Bank of Uganda (BoU) is expected to announce its key lending rate for October and November on Tuesday, and some traders anticipate policymakers will be persuaded by falling inflation to cut it from 11 percent now.
Last month Uganda's year-on-year headline inflation fell for the sixth straight time to 1.4 percent for September from 2.8 percent in August, helped by lower food price inflation.
The shilling is now 5.6 percent weaker to the dollar so far this year. Traders expect it to cede more ground in the weeks ahead as importers seek greenbacks to build up imported stocks to meet demand from shoppers before the December holidays.
Faisal Bukenya, head of market making at Barclays Bank, said some commercial banks were also covering short dollar positions. He expected a bearish tone to continue in the run up to next week's rate decision.
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