KAMPALA: The Ugandan shilling weakened on Wednesday on dollar demand from banks hedging against the globally strong U.S. currency, as well as the manufacturing and energy sectors.
At 0824 GMT commercial banks quoted the shilling at 2,865/2,875, weaker than Tuesday's close of 2,855/2,865.
"The global strength of the dollar has triggered a scramble for covering of short positions by some banks," said Ahmed Kalule, trader at Bank of Africa.
"There's also demand from corporates in the energy and also from manufacturers."
The local currency is down 3.3 percent against the greenback so far this year.
The shilling has been trading in a tight band in recent days after coming under pressure in January, prompting the central bank to sell unspecified amounts of dollars on five separate occasions to slow down its depreciation.
Traders said they expected the Ugandan currency to trade in a stable range of 2,850-2,880 ahead of a key policy rate decision for the next two months due on Thursday.
After being left unchanged three consecutive times previously, traders are eager to see central bank's next policy stance against a backdrop of low inflation, a weaker local currency and surging rates on government debt.
A trader at a leading commercial bank said the risks from a weak shilling were counter balanced by low inflation.
"I would bet on a neutral stance," the trader said.
Uganda's headline inflation fell for a second consecutive month to 1.3 percent year-on-year in January from 1.8 percent in December.
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