KAMPALA: The Ugandan shilling firmed on Wednesday, buoyed by slowing dollar demand from corporates but its outlook was still seen as bearish on scant hard currency inflows and fears over rising government spending.
At 0925 GMT commercial banks quoted the shilling at 3,290/3,300, stronger than Tuesday's close of 3,310/3,320.
The local currency is now 16 percent weaker against the greenback so far this year.
"Demand from both interbank and corporates has slowed down a bit and we're seeing the shilling benefit from that," said Faisal Bukenya, head of market making at Barclays Bank.
A central bank sell-off of unspecified amount of dollars on Friday helped check a relentless depreciation momentum for the shilling that was fuelled by soaring interbank demand.
Although it is now off its all-time low of 3,365/3,375 hit on June 19, most traders still point to a likelihood of renewed depreciation pressure on the back of a surge in government spending, a deteriorating current account deficit and a globally bullish dollar.
According to Bank of Uganda data, the country's current account deficit ballooned to $687 million during the quarter to the end of April this year, from a deficit of $422.8 million in the preceding quarter.
"BoU's intervention sent some reassuring signal ... I would expect the shilling to play around the 3,300 level in the short term," said a trader at a leading commercial bank.
"However the bias clearly will remain on the weaker side as long imports continue to race ahead of exports."
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