KAMPALA: The Ugandan shilling weakened on Friday, undermined by dollar demand from commercial banks looking to square positions and others stocking up on hard currency for dividend payments.
At 0848 GMT commercial banks quoted the shilling at 2,545/2,555, weaker than Thursday's close of 2,540/2,550.
"The shilling has depreciated and it's been driven mainly by (dollar) demand in the interbank ... some banks are squaring positions while others could be buying for dividend payments," said Faisal Bukenya, head of market making at Barclays Bank.
The shilling is down nearly 1 percent against the dollar this year.
Traders say its medium-term prospects are uncertain given concerns that Western aid cuts, following Uganda's recent decision to pass legislation that toughened punishment for gays, may cut inflows of hard currency and undermine economic growth.
Economic growth is forecast at 6.2 percent this year, according to a Reuters poll. Bukenya said the shilling's losses might be capped by a liquidity squeeze after the central bank on Friday mopped up an unspecified amount of shillings from the market via a seven-day repo.
"I think going into next week the shilling will consolidate in the 2,530-2,570 range but perhaps with an appreciation bias because some support is likely to come through from the Treasury auction," said David Bagambe, a trader at Diamond Trust Bank.
Bank of Uganda is due to sell a total of 165 billion shillings ($64.78 million) worth of Treasury bills of 91-, 182-, and 364-day tenors.
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