Uganda central bank sells hard currency as shilling slides

KAMPALA, Thursday

Uganda's central bank sold an undisclosed amount of hard currency in the local foreign exchange market on Thursday after the shilling slid towards a record low of 2,710 hit on June 30, 2011.

The bank said in a notice to the market that it was also offering a 7-day, reverse repurchase agreement (repo) for an unspecified amount of money during the session.

"The shilling opened at 2,650/2,660 but weakened sharply to 2,675/2,685 prompting the central bank to come in. It's now at 2,665/2,575," said Faisal Bukenya, head of market making at Barclays Bank Uganda.

"With today's levels it's clear we're moving back to the record low of 2710 in June."

Market players said dollar demand from the energy and manufacturing sectors was weighing heavily on the shilling.

Like other currencies in east Africa, the shilling has weakened sharply against the dollar this year, mainly due to huge demand for the greenback, a weakening shilling in neighbouring Kenya and speculative trading.

Analysts have said east African shillings, including the Tanzanian unit, will remain under pressure unless interest rates rise to a level where real returns can attract capital flows into the largely import-dependent economies.

Uganda's central bank raised its benchmark lending rate (CBR) to 14 percent on Tuesday to rein in soaring inflation and its governor said he would raise the rate as high as necessary to curb the rise in prices.

Days earlier, Kenya's central bank surprised markets by leaving its benchmark interest rate unchanged at 6.25 percent, heaping pressure on the Kenyan shilling.

Kenya's currency sank to a record low of 92.10 against the dollar on Thursday, weighed down by demand for the U.S. currency from oil importers, traders said.

(Reuters)