Ugandan shilling firms vs dlr, banks trim long positions

KAMPALA Fri Jan 11, 2013 6:59am EST

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KAMPALA Jan 11 (Reuters) - The Ugandan shilling firmed 0.4 percent against the dollar on Friday, underpinned by tight liquidity and banks cutting their long greenback positions, traders said.

At 1103 GMT commercial banks quoted the currency of east Africa's third-largest economy at 2,685/2,695, stronger than Thursday's close of 2,695/2,705.

"Banks have been selling dollars which they had stockpiled at the beginning of this month in anticipation of huge demand from corporates but have now realised that demand isn't materialising," said Thaib Lubega, a trader at Stanbic Bank Uganda.

"Also shillings are in scarcity, so a combination of interbank selling and tight liquidity is strengthening the shilling."

The local currency finished last year nearly 8 percent weaker against the dollar, in part hurt by the central bank's succession of cuts to its key lending rate.

Earlier this month Bank of Uganda left that rate unchanged at 12 percent to cushion the shilling from undue pressure and help curb rising consumer prices.

Year-on-year headline inflation in Africa's top coffee exporter edged up in December for a second straight month to 5.5 percent from 4.9 percent in November, fuelled by a surge in non-food prices.

Analysts say the shilling's projected medium term performance is weak, undermined by a negative economic outlook and scant dollar inflows and fears of economic disruption from possible violence around elections in Kenya in March.

"There have been inquiries for dollars from importers and manufacturers, so (we) anticipate the shilling to remain weak in the medium term," a market report by Centenary Bank said.

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