KAMPALA: The Ugandan shilling weakened sharply on Monday, trading below a key psychological level due to increased dollar demand from commercial banks and importers and traders said the outlook was bearish due to the stronger greenback.
At 0817 GMT commercial banks quoted the shilling at 2,798/2,808, weaker than Friday's close of 2,780/2,790.
"Importers are exerting strong demand ... and because banks are anticipating a weaker unit they are also taking positions," said Ahmed Kalule, a trader at Bank of Africa Uganda.
The shilling lost about 9 percent against the dollar in 2014, with much of the depreciation occurring in the second half of the year, driven by soaring importer demand.
During Monday's session, the shilling touched 2,800/2,810 to the dollar, a level it last hit in 2011 when it opened trade at 2,815/2,825 to the dollar on Oct.24, according to Thomson Reuters data.
Kalule said the central bank was in the market mopping up excess liquidity using repurchase agreements.
The bank said in a notice it had mopped up 332 billion shillings.
Over the last several months, the central bank has frequently absorbed excess liquidity by raising the cost of holding onto long dollar positions.
Stephen Kaboyo of Alpha Capital Partners said in a market note that the shilling's depreciation was likely to accelerate as corporate firms open for business after the festive season.
"With the psychological level of 2,800 ... touched, all eyes will be on the central bank on how it responds to the depreciation pressures," he said. "Anymore weakening beyond 2,800 may throw the market into a panic spin."
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