Bloomberg News

Uganda Shilling Strengthens as Central Bank Sells Dollars Again

July 01, 2011

July 1 (Bloomberg) -- Uganda’s shilling gained for a second day as the central bank continued to sell dollars in the domestic foreign-exchange market to curb volatility.

The currency of Africa’s second-biggest coffee producer climbed 1.5 percent to 2,552.50 per dollar by 2:15 p.m. in the capital, Kampala, taking its increase since yesterday to 4.8 percent, the biggest two-day advance since February 2006. The shilling is the second-best performer worldwide against the dollar, after the Mozambican metical, according to data compiled by Bloomberg.

The Bank of Uganda sold a “sizeable” amount of dollars today, Stephen Kaboyo, director of financial markets at the central bank, said in a phone interview. “We are in the market basically still to deal with the speculative tendencies.”

The central bank has sold dollars in the domestic foreign- exchange market at least four times since June 15 as the currency weakened to its lowest level since June 1993. Inflation in the East African country has accelerated to a 17-year high of 16 percent in May, before slowing to 15.8 percent last month.

Governor Emmanuel Tumusiime-Mutebile said last month the central bank “shall not hesitate” to stem speculative trading in the currency. The central bank’s foreign reserves currently stand at 5.62 trillion shillings ($2.17 billion), according to the bank’s website.

Today’s dollar sales by the bank helped the currency firm, said Benon Okwenje, a trader at Stanbic Uganda Ltd.

“We have come down slightly,” he said. “The spreads are still wide,” indicating continuing volatility, he said.

Uganda, East Africa’s third-biggest economy, is scheduled to become an oil producer next year when Tullow Oil Plc is expected to start pumping crude and gas from the Lake Albert Basin. The country has an estimated 2.5 billion barrels of oil, with about 1 billion barrels in proven reserves, according to Tullow.

--Editors: Paul Richardson, Ana Monteiro.

To contact the reporter on this story: Fred Ojambo in Kampala at fojambo@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net.


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