KAMPALA: The Ugandan shilling was weaker on Monday and may lose further ground, testing a key psychological level, if the central bank does not intervene on the supply side.
At 1039 GMT commercial banks quoted the shilling at 3,665/3,675, weaker than Friday's close of 3,645/3,655.
"The main factor weighting on the shilling is that there are no significant inflows" of dollars," said Faisal Bukenya, head of market making at Barclays Bank.
Last week, Bank of Uganda intervened and sold an unspecified amount of hard currency after the shilling weakened, although gains were fleeting. Traders still expect the shilling to falter in the coming months as investor sentiment weakens, undercut by ballooning fiscal and current account deficits and growing uncertainty fuelled by next year's elections.
Bank of Africa said in a market note it expected the shilling to remain bearish in the absence of support by the central bank via direct intervention.
"Market players have resorted to building dollar positions in preparation for the obligations materializing in the final months of the year," the note said. The shilling's next psychological level is 3,700, and that is "likely to be breached any time from now."
A combination of strong demand for dollars from energy companies, manufacturers, and other heavy importers and jitters about the forthcoming elections have kept the shilling weak since January.
It has lost 24.4 percent of its value against the greenback so far this year.
Some traders have said the shilling's depreciation has kept offshore investors from buying Ugandan debt despite high yields, resulting in scant inflows of hard currency.
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