Ugandan shilling posts losses as banks exert demand

KAMPALA Wed May 14, 2014 9:07am EDT

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KAMPALA May 14 (Reuters) - The Ugandan shilling was weaker on Wednesday, weighed down by demand for dollars in the interbank market, but was expected to stabilise on expectations that the central bank will intervene in the market to mop up of excess liquidity.

At 1004 GMT commercial banks quoted the currency of east Africa's third largest economy at 2,518/2,528, slightly weaker than Tuesday's close of 2,513/2,523.

"The shilling has been pressured by (dollar) demand from banks which has forced it into bearish territory," said Faisal Bukenya, head of market making at Barclays Bank.

"But we think it will stabilise because we expect Bank of Uganda to do a repo later today."

The central bank has conducted frequent liquidity mop-ups in recent months which has partly helped keep the local currency largely stable against the greenback in the year to date.

Muted hard currency demand from corporates, attributed to slow private sector credit growth, has also provided support to the shilling.

Traders said they were also awaiting the results of a Treasury bill auction to see whether the sale had attracted significant offshore demand.

Healthy foreign investor participation in the auction would signal a potential surge in inflows and gains for the shilling.

"We might see a measure of self-correction for the shilling tomorrow depending on whether we get dollars coming through after the auction," said a trader at a leading commercial bank.

Bank of Uganda was later on Wednesday expected to release results of a Treasury bill auction worth 120 billion shillings ($47.68 million).

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($1 = 2517.0000 Ugandan shillings) (Reporting by Elias Biryabarema; editing by Drazen Jorgic)

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