The Observer (Kampala)

9 December 2012

Uganda: Low Dollar Demand Amidst Festive Season

Following a major market event, the Central Bank Rate announcement on Tuesday, the shilling lost ground touching the 2,700 resistance level yet again.

The shilling traded in a narrow range in the second half of the week holding at 2,690/2,670 levels.

As the festive season sets in, demand for the greenback is expected to die down and hence less volatility. All said and done, the undercurrent is of a weaker shilling going forward largely driven by the declining yields, weaker Balance of Payment position, cutting by offshore investors and the negative sentiment surrounding aid cuts.

These factors will continue to drive the shilling into bearish territory. The expected trading range for the early part of this week is 2,700/2,710.

Stephen Kaboyo is the Managing Director at Alpha Capital Partners.

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DENIS MASHANYU

The Uganda shilling weakened against the US dollar during the week closing 2,690/00 from the previous close of 2,675/85. The move came after the rate cut by policymakers by 50 basis points to 12% from 12.5%.

The monetary policy statement also indicated slow economic growth expectations dampened by aid cuts by donors, thus justifying further easing despite the inflation figure having moved up to 4.9% in November from 4.5% in October and it is expected to hold into the first half of 2013.

This week we expect the market to remain largely stable with a bias towards further local unit depreciating. We expect the shilling to trade in the 2,680-2,710 range though with thin liquidity as major players slow down ahead of the festive season.

Denis Mashanyu is a Forex Trader with Standard Chartered bank.

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