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Ugandan shilling stronger, helped low dollar demand, tight liquidity

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KAMPALA (Reuters) – The Ugandan shilling was slightly firmer on Monday due to subdued dollar demand and tight liquidity in the money markets, traders said.

At 0905 GMT, commercial banks quoted the shilling at 3,668/3,678, stronger than Thursday’s close of 3,675/3,685. Markets were closed on Friday for a national holiday.

“Some players in the interbank are cutting back their (dollar) positions because there’s no demand,” said Ali Abbas, trader at Crane Bank.

“I have also seen some banks doing conversions to get shillings because there’s a bit of (shilling) scarcity.”

The local currency has lost 25 percent against the greenback so far this year and its steep depreciation has prompted the central bank to increase its key lending rate to try provide support and stem price pressures.

The rate now stands at 16 percent after being raised by a total of 500 basis points so far this year.

The central bank is due to make its next announcement on the rate on Thursday and most analysts expect a hike to help curb surging inflationary pressures.

Uganda’s inflation shot up to 7.2 percent year-on-year in September from 4.8 percent in August.

Bank of Africa said in a market note it expected some demand from energy companies, which could give the shilling some depreciation bias, though it will likely remain below 3,700.

(Reporting by Elias Biryabarema; Editing by George Obulutsa and Tom Heneghan, Reuters)

 

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