The Uganda shilling lost ground, erasing some of its slight gains of the previous week, as demand for dollars picked up from the energy, telecom and manufacturing sectors coupled with commercial banks covering short positions during the week ending 12th October 2018.
Trading was in the range 3795/3805. In the interbank shilling market, overnight funds traded at 7% while one week traded at 8.5%, with some bit of tightness emerging.
In the fixed income segment of the market, a Treasury bill auction with 195 billion on offer was held. Yields increased across all the tenors, mirroring the upward revision of the Central Bank rate coupled with a relatively larger auction size.
91 day printed at 10.999%, while the 182 and 364 days, turned out at 12.547% and 13.501%. The levels of oversubscriptions were lower than usual as seen in the bid to cover ratios of 0.77, 0.815 and 1.17 respectively.
In the regional currency markets, the Kenya shilling was relatively stable but remained on the edge as the absence of the IMF precautionary facility exposed the shilling to negative investor sentiment that was likely to cause volatility. Other frontier markets also remained under tension as headwinds begin to gather due to rise in US interest rates.
In the international currency markets, the US dollar traded at its lowest this month as US treasury yields declined and big losses on Wall street soured sentiment. The greenback usually seen as safe haven when markets are turbulent was bearish as nervous investors cut back their wagers and drove US stocks to their worst fall in eight months.
“Outlook for the [Uganda] shilling indicates a gradual weakening of the unit on expected surge in demand as seasonal import demand manifests. Midmonth corporate tax payments may slightly offer a respite,” says Stephen Kaboyo, an analyst and Managing Director at Alpha Capital Partners.