7 October 2012

Uganda: Local Shilling Still Weaker Versus U.S Dollar

The Uganda shilling traded weaker against the dollar in the week ending Oct. 5 as the market players anticipated a rate cut from the monetary policy committee following a drastic fall in inflation numbers.

The Uganda shilling has depreciated by nearly 3.0% in recent weeks as falling interest rates have led to a decline in offshore portfolio investments into the government debt issuances.

The Bank of Uganda (BoU) cut its benchmark interest rate by another 200 basis points, on the back of a sharp decline in headline and core inflation, largely due to statistical base effects.

Headline inflation plummeted in September to 5.4%, compared to 11.9% in August, with core inflation dropping from 11.5% to 4.8%.

Dickson Magecha, in charge of Financial Markets at Standard Chartered Bank, said last week Ugandan Treasury Bill yields dropped at an oversubscribed auction, with BoU accepting bids worth about Sh194 billion, more than double the Sh95 billion it had offered.

He said yields were lower across all tenors with 91, 182 & 364-Day coming at 9.656%, 10.664% & 10.692% as compared to the last auction yields of 10.017%, 11.081% & 10.708 % respectively.

The shilling closed the week trading at 2565-2575 as compared to last Friday's [Sept. 28] close of 2535/25.

"Demand emanating mostly from the energy, manufacturing and telecom sectors also kept the unit under pressure for most of the sessions with minimal inflows seen in the market," he said, adding in the medium term we expect the unit to remain under pressure due to the fundamental structural weakness of a wide current account deficit, with initial resistance seen at 2600.

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