Wednesday, May 8, 2013

Ugandan shilling inches up ahead of bond sale

KAMPALA (Reuters) - The Ugandan shilling inched up on Wednesday ahead of a Treasury bond auction that traders expected to attract interest from yield-hungry offshore investors.

At 0836 GMT commercial banks quoted the currency of Africa's third-largest economy at 2,545/2,555 to the dollar, from Tuesday's close of 2,550/2,560.

The Bank of Uganda (BoU) was on Wednesday due to auction 200 billion shillings of three- and five-year bonds. Analysts said the unscheduled sale was to plug gaps after foreign donors cut aid due to concerns over graft.

The shilling rally is "mainly because of inflows from offshore investors who are taking part in the auction," said Faisal Bukenya, head of market making at Barclays Bank.

Relatively weak demand for dollars stemming from the central bank's cautious monetary policy has kept the shilling strong since hitting a 14-month low of 2,715/2,725 early January.

The BoU has held interest rates unchanged at 12 percent for five months. Analysts say the policy will allow the shilling to trade on a firm footing in the coming weeks.

"But in the long-term, we see the shilling coming under pressure if the government raises taxes to plug the expected huge budget deficit created by direct budget support cuts by donors," Centenary Bank wrote.

The finance ministry has proposed several tax hikes in the 2013/14 fiscal year, which traders say risk deterring fresh investment in key sectors.

Source: http://news.yahoo.com/ugandan-shilling-inches-ahead-bond-sale-122225922.html

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