KAMPALA: The Ugandan shilling weakened on Wednesday, undermined by rising dollar demand from manufacturing firms and was expected to lose further ground amid a surge in market liquidity.
At 0928 GMT commercial banks quoted the shilling at 2,980/2,990, weaker than Tuesday's close of 2,973/2,983.
"There's significant corporate demand mainly from manufacturing firms which is weighing on the shilling," said Isaac Iga, chief dealer at Orient Bank.
The shilling weakened to its all-time low of 3,116/3,126 last month, pressured by strong corporate demand, the global strength of the dollar and investor fears about a likely surge in public spending ahead of 2016 presidential elections.
A series of dollar sell-offs by the central bank, Bank of Uganda (BoU) helped pull the local currency back. The shilling is 7 percent weaker against the greenback so far this year.
Traders however say the shilling's medium-term outlook is bearish against the backdrop of weak inflows and sagging investor confidence in Ugandan assets.
A trader at a leading commercial said the interbank market was flush with local currency after BoU's seven-day reverse repo on Tuesday injected liquidity.
Overnight funds exchanged hands at between 8-11 percent compared to two weeks ago when a biting liquidity squeeze pushed the rate to above 25 percent, the trader said.
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