KAMPALA: The Ugandan shilling weakened on Friday, due to increased dollar demand from commercial banks after the central bank injected liquidity into the money markets.
At 0854 GMT commercial banks quoted the shilling at the shilling at 3,630/3,650, weaker than Thursday's close of 3600/3610.
The central Bank of Uganda (BOU) injected 134 billion shillings ($36.91 million) into the interbank market using reverse repurchase agreements on Friday.
A lack of liquidity had pushed rates on overnight bank lending rates to above 20 percent on Friday compared with 8-11 percent at the beginning of the week, traders said.
"Liquidity was tight but once it was eased banks started buying which put the shilling under pressure," said Ahmed Kalule, trader at Bank of Africa.
Kalule said demand from importers and other corporates was subdued because most were willing to buy only at levels below 3,600.
"The BoU also looks determined to defend it (shilling) whenever it weakens below this level.
I think we'll trade around the 3,600 region in the short term," Kalule said.
The central bank sold dollars this week to buoy the local currency after it was hammered by strong demand from corporates and banks to touch an all-time low of 3,685/3,695 against the greenback.
The central bank has also tightened its monetary policy stance since April to support the shilling but a deteriorating current account and surging public spending ahead of presidential elections next year is seen keeping the shilling bearish in the coming months.
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