Ugandan shilling stable vs dlr, seen weakening

KAMPALA (Reuters) - The Ugandan shilling was stable against the dollar on Monday after the central bank intervened last week to try to slow its depreciation, but the market was betting on a weaker local currency ahead of an expected further policy loosening.

At 0932 GMT commercial banks quoted the currency of east Africa's third-largest economy 2,515/2,525, unchanged from Friday's close.

On Friday an exit of offshore investors spurred by declining yields on government securities pressured the shilling, driving it to a five-and-a-half month low and prompting Bank of Uganda (BoU) to sell dollars to lend support to the local currency.

"Although the shilling is stable today there's wide expectation in the market that inflation will again ease and allow a cut of the policy rate," said Thaib Lubega, trader at Stanbic Bank.

"And if the central bank further cuts its policy rate the shilling will slide."

Uganda's statistics office is due to release August's consumer price index data on Friday followed by BoU's announcement of its benchmark Central Bank Rate (CBR) on September 4.

Last month headline inflation fell to 14.3 percent from June's 18.0 percent, helped by slowing food prices.

After cutting CBR for this month by 200 basis points from July's 19 percent, BoU said it now expected core inflation to fall to 7 percent by the end of the year and signalled it was prepared to unwind its monetary policy further to stimulate sluggish economic growth.

"We anticipate more slowing of inflation and further loosening of the policy rate but the level of policy rate cut will depend on the magnitude of the drop in prices," said Peter Mboowa, trader at KCB Uganda.

"But any further policy loosening will boost local currency liquidity and allow players to take long speculative dollars positions and that gives the shilling's outlook a bearish tone."

Source: http://news.yahoo.com/ugandan-shilling-stable-vs-dlr-seen-weakening-125425257--finance.html

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