Ugandan shilling weakens as manufacturers seek dollars

KAMPALA Mon Aug 25, 2014 7:52am EDT

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KAMPALA Aug 25 (Reuters) - The Ugandan shilling weakened a touch on Monday on dollar demand from manufacturing firms but traders say losses will be limited by central bank liquidity mop-ups and month-end dollar inflows.

At 0926 GMT commercial banks quoted the shilling at 2,595/2,605, weaker than Friday's close of 2,590/2,600.

"Some manufacturing firms came in and exerted demand so the shilling has edged higher (weaker)," said Faisal Bukenya, head of market making at Barclays Bank.

He said, however, the local currency would likely recover and trade firmer after the central bank mopped up excess shillings via a seven-day repo on Monday.

Bank of Uganda (BoU) had not yet announced how much it had mopped up.

The shilling is now 2.9 percent down against the greenback this year but is seen as having a strong medium-term outlook, supported by improving relations with western donors and rising yields on government debt.

This month's decision by the central bank to leave its key lending rate unchanged at 11 percent for August and September is also seen supporting the shilling.

Shahzad Kamaluddin, trader at Crane Bank said, the shilling should receive a boost in coming days due to end-month dollar inflows from non-governmental organisations (NGO).

"I would say key factors seem to favour a confident shilling," he said.

Most non-governmental organisations (NGOs) typically convert some of their hard currency holdings at the end of every month to meet operational expenses like salaries.

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