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Shilling Holds Steady As BoU Retains Key Lending Rate At 9%

The Uganda shilling held steady on the back of the Central Bank decision to keep the Central Bank Rate (CBR) unchanged at 9%.

“The neutral action generated a positive sentiment for the currency,” says Stephen Kaboyo, an analyst and Managing Director at Alpha Capital Partners.

Market players quoted the shilling at 3664/3674 at close of the week compared to the week’s opening levels of 2670/80.

In the fixed income market, a Treasury bill auction with 225 billion on offer was held. Yields at cutoff came out at 9.575%, 10.952% and 12.501% for 91, 182 and 364 days. All tenors were oversubscribed. However, In order to keep rates in check, outlier bids were rejected at 91 day curve and BOU accepted less than the amount on offer, while at the longer end ,BOU accepted over above the amount on offer in line with the objective of borrowing longer to mitigate refinancing risk.

In the regional currencies, the Kenya shilling was seen under pressure due to elevated dollar demand from importers and corporate players. Shilling was quoted at 100.40/60.

In the global markets, majors currencies traded generally weaker against the US dollar, as markets took a view that the US economy was better placed to weather the economic impact of the coronavirus compared to other economies and as a result the greenback benefited from carry trades where investors borrow in low yielding currencies and take their bets on high yielding assets.

“Forecast for the shilling indicates range bound trading as demand remains at a low ebb partly due to reduced pressure from importers especially those that do business in China,” says Kaboyo.

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