KAMPALA: The Ugandan shilling weakened on Tuesday, sapped by dollar demand from commercial banks, but was seen getting support from companies making local currency denominated tax payments.
At 0916 GMT commercial banks quoted the shilling at 3,670/3,680, weaker than Monday's close of 3,660/3,670.
"Demand has come in from both local and offshore commercial banks ... that has created some pressure for the shilling," said Faisal Bukenya, head of market making at Barclays Bank Uganda.
Bukenya said whenever the shilling strengthens to around 3,665, demand starts to come in, as most players consider it a good level to buy dollars.
A trader from a leading commercial bank said the shilling could recoup its losses as companies prepare to make local currency-denominated tax payments that would lead to lower demand for the dollar.
"We'll probably see a climb down to 3,660 levels in the course of the week," he said.
Tax payments strengthen the local currency because companies have to set aside shillings, which would otherwise be used to fund dollar positions, to meet those payments.
Traders have their eyes on the central bank's monetary policy committee (MPC) meeting due on Oct. 20 for clues on the shilling's direction.
After a surge in inflation last month, the market broadly expects the Bank of Uganda (BoU) to extend its running policy tightening cycle.
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