Ugandan shilling firms on thin liquidity, debt auctions

KAMPALA, Sept 2 Tue Sep 2, 2014 6:39am EDT

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KAMPALA, Sept 2 (Reuters) - The Ugandan shilling strengthened on Tuesday on a shortage of the local currency and an interbank sell-off in expectation of dollar inflows from offshore investors targeting Treasury auctions.

At 0927 GMT commercial banks quoted the shilling at 2,600/2,610, stronger than Monday's close of 2,608/2,618.

The central bank conducted a seven-day repo on Monday, sucking out local currency, though it did not disclose how much it had taken out.

"There isn't much liquidity to fund building of (dollar) positions after yesterday's mop-up," Housing Finance Bank trader Robert Mpuuga said.

"People are also anticipating great interest in the auctions so some banks are actually selling off to prepare for those inflows."

The Bank of Uganda is also due to sell 145 billion shillings ($55.79 million) of Treasury bills with 91, 182 and 364-day tenors this week.

Another auction, in which two and 15-year bonds worth 180 billion Ugandan shillings are due for sale, is scheduled for next week.

Traders say that offshore appetite for Ugandan debt is strong after a surge in yields at recent auctions.

At the last Treasury bill auction on Aug. 20, rates rose across all tenors, with the benchmark 91-day paper inching to 10.9 percent from the 10.6 percent fetched at the previous sale.

Faisal Bukenya, head of market-making at Barclays Bank, said the local currency was also benefiting from inflows from non-government organisations meeting with sagging appetite from corporates.

The Ugandan shilling is down 3.1 percent against the dollar this year.

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