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Ugandan shilling weakens after central bank lifts minimum size of banks' fx purchases
March 14, 2014 / 12:56 PM / 4 years ago

Ugandan shilling weakens after central bank lifts minimum size of banks' fx purchases

KAMPALA, March 14 (Reuters) - The Ugandan shilling lost ground on Friday as players in the interbank market looked to increase their dollar holdings after the central bank raised the minimum amount of foreign exchange a commercial bank can sell or buy in a typical deal.

The shilling weakened to as low as 2,520/30 from Thursday’s close of 2,515/2,525. By 1230 GMT it had recovered some ground with commercial banks quoting it at 2,518/2,528.

Bank of Uganda (BoU) issued a statement on Friday saying it had raised the so-called “good for quote” amount threshold to $250,000, a reference to the minimum amount of forex that a commercial bank should be able to buy or sell based on its screen quote. Traders said the threshold had been $100,000.

The central bank’s statement said all banks will be under obligation to sell or buy a minimum of $250,000 “whenever Bank of Uganda is in the market either on the sale or buy side”.

“Considering the central bank does daily (forex) purchases it can come to you and you don’t have that money ... there was a rush in the interbank to buy dollars to meet this new threshold,” said Sage Daniel Muganza, a trader at Centenary Bank.

Traders said the central bank was responding to developments in the market.

“The increase is actually responding to what the (interbank) market has been asking for for a long time,” said Benon Okwenje, a trader at Stanbic Bank.

“The minimum of $100,000 was instituted a long time ago and our financial market has since grown and expanded. Already between the big banks there’s an unwritten rule for $500,000 as the minimum amount for any deal ... the increase is something we’ve been demanding for and has nothing to do with their (BoU) interventions.”

Dollar demand from manufacturing and energy companies was also weighing on the shilling, said Ahmed Kalule, a trader at Bank of Africa.

“Some players in the interbank had oversold their dollar positions and when this demand pressure came in they were caught short ... they are also exerting demand,” he said.

Money market analysts say the medium-term prospects for the shilling are clouded by fragile market confidence, undermined by fears over the potential economic impact of aid cuts by Western countries.

Several Western donors and the World Bank have withheld aid worth more than $118 million to Uganda after President Yoweri Museveni last month signed into law anti-gay legislation that has been widely condemned as draconian.

Aid is a key source of hard currency for Uganda and any major disruption in the flow from donors typically puts pressure on the shilling. UGX Spot Rate.....

Ugandan Shilling Money Guide....

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Ugandan Debt Guide............

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Ugandan Contributor Index....

Uganda Coffee Prices....... (Editing by Drazen Jorgic and Susan Fenton)

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