KAMPALA: The Ugandan shilling hit a new all-time low on Tuesday as commercial banks snapped up dollars after the central bank signalled it would not intervene to support the local currency, traders said.
At 0851 GMT commercial banks quoted the shilling at 3,460/3,470, weaker than Monday's close of 3,440/3,450.
The market was driven by central bank comments last week that it was willing to let shilling depreciate to find its market level, Bank of Baroda treasurer Priphwijit Ghosh said.
"There's no confidence in the shilling in light of those comments and negative election sentiment is adding to the pressure," Ghosh said, referring to expectations of a surge in government spending, particularly on imports for infrastructure projects, before a national vote in early 2016.
The local currency has been posting sharp losses in recent weeks and is 20 percent weaker against the greenback since the start of the year.
"There's a lot of speculation and panicked buying because players don't think the central bank will come in," Murielle Magayane, a trader at Orient Bank, said.
Magayane said the shilling was unlikely to pull back before it hit a new psychological level of 3,500.
Uganda's widening trade deficit is also undermining the shilling, traders say.
Central bank data shows trade deficit deteriorated to $687.4 million in the quarter ended April 2015, from a deficit of $422.8 million in the preceding quarter.
Government officials say the trade deficit is being fuelled by a surge in imports to support ongoing transport and energy infrastructure projects.
Bank of Africa Uganda said in its daily market report that "traders are getting quite nervous as the unexpected level of 3,500 is closely in sight" and that "an intervention by the central bank is seen as the only action to reverse the current slide of the shilling."
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