Uganda shilling dips, may 'take a beating' if c.bank cuts rates

KAMPALA (Reuters) - The Ugandan shilling edged down against the dollar on Wednesday as energy sector importers sought dollars, and traders said the shilling may fall more if the central bank cuts lending rates next week.

At 0904 GMT, commercial banks quoted the currency of east Africa's third-largest economy at 2,530/2,540, weaker than Tuesday's close of 2,520/2,530.

"We have also seen a surge in dollar purchases by commercial banks probably in anticipation of a rate cut, and all this is pressuring the shilling," said Faisal Bukenya, head of market making at Barclays Bank.

The central bank is scheduled to set its benchmark lending rate next Tuesday after the government releases inflation data for September on Friday.

Markets expect there will be another rate cut as policymakers look to shore up economic growth.

The cut could cause yields on government securities to fall and stimulate demand in the economy, both of which could put pressure on the shilling as overseas investors stay out of debt auctions and imports rise, thereby driving dollar demand.

Traders said the shilling was likely to trade in a range of 2,510-2,560 ahead of the rate decision, with a strong bias toward depreciation.

"I see the shilling taking a beating ahead of the rate decision although the central bank might intervene on the supply side if the depreciation is volatile," said Denis Mashanyu, trader at Standard Chartered Bank.

Source: http://news.yahoo.com/uganda-shilling-dips-may-beating-c-bank-cuts-105751832--business.html

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