KAMPALA: The Ugandan shilling weakened for a second straight day on Tuesday as commercial banks bought dollars and traders expected the local currency to lose further ground unless the central bank intervened.
At 1025 GMT commercial banks quoted the shilling at 2,780/2,790, weaker than Monday's close of 2,768/2,778.
"Most commercial banks are short after yesterday's strong energy sector demand (for dollars)," said Robert Mpuuga, trader at Housing Finance Bank.
"They (banks) are now covering those positions."
The shilling fell on Monday on dollar demand from energy and telecoms companies, although hard currency inflows from charities slowed the currency's decline.
Mpuuga said the shilling would likely weaken to touch 2,800 this week if the central bank does not mop-up excess liquidity.
By absorbing excess liquidity, the bank makes it relatively more expensive to hold long dollar positions, which lends support to the shilling.
On Monday, the central bank or Bank of Uganda drained a total of 360 billion shillings ($129.64 million) from the money market via a seven-day repo. Mpuuga said the action had helped slow down the pace of the shilling's depreciation.
The shilling is 9.3 percent weaker against the greenback so far this year, undermined by importer demand for dollars.
A trader at a leading commercial bank said the shilling typically draws support from money sent home by Ugandans living abroad -- or remittances.
"This time these inflows are not coming in at levels that we anticipated... it explains this pressure on the shilling."
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