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KAMPALA: The Ugandan shilling inched lower against the dollar on Friday, undermined by dollar demand from the energy sector, a day after the local currency rallied on a central bank decision to leave interest rates unchanged.

At 0903 GMT commercial banks in Kampala quoted the currency of Africa's leading coffee exporter at 2,455/2,465, a touch weaker than Thursday's close of 2,450/2,460.

The Bank of Uganda (BoU) left its benchmark rate unchanged at 21 percent for the second straight month despite a fall in the consumer price index last month.

The bank said while Uganda's year-on-year inflation had eased to 20.3 in April from March's revised 21.1 percent, rising food prices and uncertainty surrounding the trajectory of oil prices posed risks.

"I think the dollar fell to a level where energy companies and other importers felt comfortable to buy," said Seif Kiwanuka, head of treasury at Diamond Trust Bank.

"We're looking to trading in a stable range of between 2,435-2,500 range next week because corporate demand is coming in, though it's still soft."

Analysts say the BoU's decision was premised on fears a resumption of monetary policy easing would spark an exodus of foreign investors from Ugandan debt and put pressure on the local currency, risking more imported inflation.

An unexpected rate cut in March and a slump in yields on government securities led to a plunge in the shilling to its 2012 low of 2,620 that month.

"The market will probably see improved demand from corporates next week because the dollar is at a good entry level now," said a trader at a leading commercial bank.

"But it won't be enough to push (weaken) the shilling back past 2,500."

Copyright Reuters, 2012

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