July 30, 2014 / 1:06 PM / 3 years ago

Ugandan shilling gains as aid resumption triggers interbank sell-off

KAMPALA, July 30 (Reuters) - The Ugandan shilling firmed on Wednesday, buoyed by an interbank dollar sell-off amid expectations of a surge in future inflows after Sweden resumed full aid payments to the east African country.

At 1132 GMT commercial banks quoted the shilling at 2,615/2,625, stronger than Tuesday’s close of 2,625/2,635.

Sweden on Monday announced it had resumed financial aid to Uganda after suspending some assistance in March over a law widely condemned by donor nations that increases punishments for homosexuals. Sweden said it would provide 1.35 billion crowns ($198 million) over the next five years.

“Most banks are trying to trim their dollar positions following Sweden’s aid announcement,” Bank of Africa trader, Ahmed Kalule, said.

“There’s significant expectation in the market that aid flows will significantly boost dollar supplies,” he said.

Major Western donors, including Sweden, suspended their financial support to Uganda early this year after President Yoweri Museveni signed an anti-gay law criticised as draconian.

Uganda relies on aid to fund about 20 percent of its annual public spending and hard currency flows from external financial support are a major prop for the shilling.

Crane Bank trader Shahzad Kamaluddin said the shilling was likely to maintain a bullish tone amid weak corporate demand for dollars and inflows from non-governmental organisations (NGOs).

Charities often covert their dollar holdings at the end of the month to pay salaries and meet other operational expenses.

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Ugandan Shilling Money Guide....

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Uganda Coffee Prices....... (Reporting by Elias Biryabarema; Editing by James Macharia and Louise Ireland)

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