KAMPALA: The Ugandan shilling surrendered more ground on Monday after a central bank official said monetary policy could be eased further and the United States cut some aid because of Uganda's tougher anti-gay law.
At 0848 GMT commercial banks quoted the currency at 2,605/2,615, weaker than Friday's close of 2,590/2,600.
"The news that came out of the central bank last week plus the U.S. sanctions are all pointing to a negative outlook for the shilling," said Robert Mpuuga, trader at Housing Finance Bank.
"That prompted a rush by most banks to strengthen their dollar positions and the shilling losing strength as a result."
A senior Bank of Uganda (BoU) official, Adam Mugume, told Reuters on Friday there was room for further policy easing if the government stuck to its public borrowing target of 1.4 trillion Ugandan shillings.
A U.S. move late on Thursday to cut some aid, impose visa restrictions and halt a regional military exercise prompted investors to seek dollars in the nation that still relies heavily on support from Western and other donors.
This month, BoU loosened policy for the first time since December, by cutting its key lending rate to 11 percent from 11.5 percent.
Although the local currency has remained largely stable against the greenback, it has recently come faced more pressures and is now 3.3 percent down in the year to date.
Declining yields on government securities have put further pressure on the shilling by driving away offshore investors.
Faisal Bukenya, head of market making at Barclays Bank said the shilling was also being weighed down by some demand from manufacturing and telecoms firms.
"At this level I think BoU is perhaps watching keenly... it's possible they might come in if the pressure continues to build rapidly," he said, adding the central bank helped the currency on Monday by mopping up 111.5 billion shillings of excess liquidity.
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