KAMPALA: The Ugandan shilling strengthened 0.2 percent against the dollar on Friday, helped by tight local currency liquidity but traders said it might surrender those gains next week on the back of typical month-end greenback demand from importers.
At 1110 GMT, commercial banks quoted the currency of Africa's largest coffee exporter at 2,465/2,475, stronger than Thursday's close of 2,470/2,480.
"Trading is thin but also the market is low on shillings and that's what is energising the shilling," said Faisal Bukenya, head of market making at Barclays Bank.
The shilling has been making steady though modest gains against the dollar since the central bank cut its key lending rate for this month on June 1, citing a need to stimulate stalling economic growth.
Bank of Uganda (BoU) trimmed 100 basis points off its benchmark Central Bank Rate (CBR)this month from May's 21 percent.
Analysts say the local currency is likely to come under pressure in the weeks to come as credit flow surges in the wake of BoU's new policy easing cycle.
Bukenya said the shilling would find its support and resistance levels at 2,485 and 2,460 respectively in the days to come.
"Next week we'll be nearing end of month and we do expect an uptick in dollar demand which will likely pare the shilling's gains today," said Lucas Ochieng, head of treasury at Orient Bank.
Corporate firms stock up on greenbacks at the end of the month to pay for next month's raw material supplies.
Traders also say the shilling will retreat against the dollar in the medium term, undermined by waning interest of foreign investors in Ugandan securities.
On June 14 the finance minister announced a hike of withholding tax on income from investments in government securities from 15 to 20 percent.
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