Ugandan shilling gains as central bank mops up excess supply

KAMPALA: The Ugandan shilling inched up on Monday, lifted by a central bank mop-up of excess local currency and sluggish demand for the dollar from importers.

At 0932 GMT, commercial banks in Kampala quoted the currency at 2,645/2,655, marginally stronger than Friday's close of 2,650/2,660.

"The central bank has done a seven-day repo and also demand for dollars from big importers is not there, so the shilling is picking up some gains," said Sage Daniel Muganza, trader at Centenary Bank.

The shilling has been firming since early last month when it hit a 14-month low of 2,713/2,723, supported by generally lacklustre appetite for dollars from manufacturing and energy sectors.

But the Ugandan currency's medium-term prospects look weak as market confidence is hit by aid cuts by western donors and jitters over possible post-poll violence in neighbouring Kenya.

In October, at least five western donors including Uganda's biggest bilateral donor, Britain, cut all aid to the country's government after evidence emerged that funds may have been stolen.

The hard currency from foreign aid helps support the shilling. Uganda is east Africa's third-largest economy but lacks a strong export base.

Kenya is Uganda's largest regional trading partner and gateway to the sea and if the March 4 elections there produce chaos as happened in 2007, Uganda's economy could be hit hard.

In a market note, Centenary Bank said the shilling was likely to swing in the 2,640/2,660 range in the coming days.