Ugandan shilling stable, with no rate hike seen despite inflation rise

KAMPALA Fri Jan 31, 2014 9:03am EST

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KAMPALA Jan 31 (Reuters) - The Ugandan shilling was stable on Friday on expectations the central bank will not raise its key lending rate next month, despite a small rise in inflation in January.

At 1123 GMT, commercial banks quoted the currency of east Africa's third-largest economy at 2,475/2,480, little changed from Thursday's close of 2,477/2,482.

Data released by the statistics office on Friday showed Uganda's year-on-year headline inflation rose to 6.9 percent in January from December's 6.7 percent, driven by a surge in food prices.

"The calculation in the market is that the central bank is likely to hold the CBR (central bank rate), so I think that's why players have adopted a sort of wait-and-see posture," said a trader at a leading commercial bank.

Bank of Uganda is due to announce its central bank rate for next month on Feb. 4. In January, the bank left it unchanged at 11.5 percent.

The trader said the shilling would probably be supported by next week's Treasury bill auction. Notes worth 165 billion shillings ($66.64 million), of all maturities, are on offer.

The local currency gained 1.8 percent in January on the back of weakening demand from corporate clients for hard currency.

Benon Okwenje, a trader at Stanbic Bank, said although overall prices rose this month, BoU was likely to be persuaded by core inflation in its rate-setting decision.

"From BoU's inflation-targeting perspective, it's core that matters, and core inflation actually declined ... I strongly think BoU will hold its rate because raising it would be premature," he said.

Core inflation, which excludes food, fuel, electricity and metered water, declined to 4.6 percent in the year ended in January from 5.7 percent in December.

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($1 = 2476.0000 Ugandan shillings) (Editing by James Macharia)

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