KAMPALA: The Ugandan shilling was stable on Friday after the central bank injected local currency liquidity into the interbank market but the local currency was expected to weaken on emerging dollar demand.
At 0839 GMT commercial banks quoted the shilling at 3,000/3,010, little changed from Thursday's close of 2,995/3,005.
The central bank, Bank of Uganda (BoU) sold local currency to banks via a seven-day reverse repo to improve liquidity but it was unclear how much shillings it pumped into the market.
"Because of shilling scarcity players were unwinding positions but they can now breathe after the reverse repo," said Isaac Iga, chief dealer at Orient Bank, referring to banks that had been selling down their dollar positions.
"They can now rebuild positions and it's pushing the unit down."
This is the second liquidity injection into the market by the BoU this week after it carried out a 296.5 billion shillings ($98.83 million) reverse repo on Tuesday.
The shilling is 7.8 percent weaker against the dollar so far this year and much of the depreciation pressure was partly spurred by strong corporate demand and investor jitters over Uganda's large current account deficit.
Sage Daniel Muganza, trader at Centenary Bank, said the local currency would trade in the 2,990-3,015 range to the dollar next week. "If we get good end of month (dollar) demand coming in some limited depreciation might be possible," Muganza said.
Most end-month dollar demand comes from importers picking up hard currency to pay for raw material shipments for the following month.
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