Ugandan shilling extends losses on short covering by banks

KAMPALA: The Ugandan shilling weakened for a second straight day on Tuesday, posting steep losses after a surge in demand for greenbacks by commercial banks looking to cover short positions.

At 0929 GMT commercial banks quoted the shilling at 3,490/3,500, weaker than Monday's close of 3,420/3,430. "The sharp upward trend (depreciation) is largely due to short position covering in the interbank market," said Shahzad Kamaluddin, trader at Crane Bank.

Traders said some banks had taken short dollar positions to meet expected demand for shillings but that demand had not materialised and they were now unwinding those positions. "There's also a bit of excessive shilling liquidity in the interbank," Kamaluddin said.

Last week, Bank of Uganda (BoU) mopped a total of 315 billion shillings ($91.04 million) worth of excess liquidity from the interbank market.

So far this year, the shilling is about 20 percent weaker against the dollar.