KAMPALA: The Ugandan shilling was steady on Monday, but was expected to firm as market players unwind their hard currency positions to cope with tight supply of shillings. At 0921 GMT commercial banks quoted the shilling at 3,665/3,675, unchanged from Friday's close.
"The key driver for the shilling going forward will be liquidity," said a trader at a leading commercial bank.
"Shillings are scarce and I think we're likely to see players unwinding their positions for some local currency liquidity."
The scarcity of shillings pushed rates on overnight funds to 17-18 percent on Monday, from an average of 8-11 percent when the market is well supplied with shillings, the trader said.
In recent months the central Bank of Uganda (BoU) has generally kept a tight lid on liquidity in the interbank to support the shilling, which has lost 24.6 percent versus the dollar this year.
Last month the BoU also lifted its policy rate for the fourth time this year to buoy the shilling. The benchmark lending rate has been increased by 500 basis points since April to 16 percent.
Traders though still see a weaker medium-term outlook for the local currency as investors worry about instability ahead of next year's elections, rising public spending and a trade deficit.
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