Ugandan shilling holds steady as rise in liquidity curbs gains

KAMPALA (Reuters) - The Ugandan shilling held steady on Tuesday, with further strengthening curbed by increased local currency liquidity due to government securities maturing. At 1125 GMT commercial banks quoted the currency of east Africa's third-largest economy at 2,568/2,573, unchanged from Monday's close. "There has been some maturities today which helped improve liquidity although some tightness remains," said Benon Okwenje, trader at Stanbic Bank. "Another round of maturities is expected on Thursday and that's when liquidity will return to normal levels but the shilling will likely not break out of the 2,565-2,580 range." Okwenje said about 250 billion shillings had been pumped into the market using reverse repurchase agreements on Tuesday and about a similar amount was anticipated on Thursday. Traders say the central bank has kept a tight lid on liquidity in the interbank market in recent days. This month Bank of Uganda hiked its key lending rate to 12 percent from last month's 11 percent, moving to stop high food costs from filtering through to non-food price pressures. The shilling is seen in a stable range in the short to medium-term although demand for dollars to ship in goods for year-end shoppers might exert limited pressure. "The market's direction will also be determined by the outcome of the Federal Reserve's meeting on whether to maintain or scale back the stimulus programmes," said Ahmed Kalule, trader at Bank of Africa. "Depending on their decision we'll know whether offshore interest in our debt will tail off or increase." Dollar inflows from offshore buyers of Ugandan debt partly help support the shilling and a Federal Reserve action that pulls back offshore appetite for risky assets in emerging markets could in turn lead to a weaker shilling.