KAMPALA: The Ugandan shilling was largely stable on Wednesday but was expected to face pressure in the short term due to strong liquidity and an expected recovery in corporate demand for dollars.
At 0805 GMT commercial banks quoted the shilling at 2,860/2,870, little changed from Tuesday's close of 2,858/2,868.
Sage Daniel Muganza, trader at Centenary Bank, said there was a lot of liquidity due to government spending at the end of January to pay public workers' salaries and other recurrent expenditure.
"There are a lot of shillings around and I think the risk for the local unit going forward is mild depreciation," he said. "I also anticipate corporate activity to pick up speed, which should fuel some appetite for the dollar."
The shilling, which has weakened by 3.1 percent against the dollar so far this year due in part to commercial banks trying to hedge against the strong dollar, has been fairly stable in recent days.
Interventions by the central bank helped stem the depreciation. Traders say the shilling could be supported in the medium term by rising yields on Uganda government debt.
Analysts say a recent spike in government bond yields reflects investor concerns that Ugandan government spending may surge ahead of a general election due in early 2016. However, the spike is also starting to make the debt attractive again to foreign investors, they say.
Muganza said that if yields on Treasury bills at an auction scheduled on Wednesday maintained a recent upward trend, it would bolster confidence in the local currency.
Benon Okwenje, trader at Stanbic Bank, said he expected the shilling to trade in a range of 2,850-2,870 in the short term.
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