KAMPALA: The Ugandan shilling gained on Tuesday as demand for hard currency slowed after corporate clients made mid-month tax payments. At 1007 GMT, commercial banks quoted the shilling at 3,658/3,668 to the US dollar, compared with Monday's close of 3,662/3,672.
"Mid-month tax payments have pretty much slowed appetite from corporates," said Shahzad Kamaluddin, a trader at Crane Bank.
Tax payments usually buoy the shilling because companies, mostly importers, reserve some of their local currency holdings for those payments rather than use them to buy dollars.
Kamaluddin said some interbank players were holding off on demand before the Federal Reserve's interest rate decision due on Thursday.
"I think everyone is holding their cards to their chest as they await market direction after Fed decision," he said.
The shilling has weakened by 24.4 percent against the US currency so far this year.
Traders say its outlook in the coming months is bearish as the country's ballooning trade deficit weighs on investor sentiment.
Data from the central bank shows Uganda's current account deficit widened to $2.4 billion in the 2014/15 fiscal year from $2.1 billion the previous period and is projected to deteriorate further to $2.8 billion in 2015/16.
Concern over possible capital flight before presidential elections early next year are also expected to undermine the shilling in the medium term.
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