Shilling to remain stable thanks to liquidity tightness, tepid market demand

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By Stephen Kaboyo

The Uganda shilling was relatively stable on account of liquidity tightness and weak corporate demand.
Trading was in the range of 3620/3630. January inflation dipped to 3.0% from 3.3% at the same time Core, the closely watched indicator also dropped to 2.6% from 3.0% mainly driven by the low food prices. In interbank money market, overnight funds traded at 7.50% and one week at 9:50%.

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In fixed income market, Bank of Uganda held a 140 billion treasury bill auction, All tenors marginally edged up an indication that rates could have bottomed out. Yields were at 8.39%,8.64% and 9.27% for 91, 182 and 364 days respectively.

In the regional markets, the Kenya shilling held steady as it turned out that the opposition inauguration did not erupt into violence. Commercial banks that had long positions were seen liquidating. The market also received significant portfolio flows.

In international markets, the US dollar strengthened against other major currencies following the Federal Reserve policy meeting that kept the Fed rate unchanged.
The Federal Reserve signaled that the US economy will expand at a moderate pace, reinforcing the view that it could raise interest rates several times during the year.

In commodities market, oil extend modest gains riding on OPEC’s strong compliance on supply. NYMEX for march delivery traded at USD 64.81 per barrel.

Forecast for the coming week indicate that the shilling is likely to hold at current levels with a chance for a mild appreciation anchored by liquidity tightness and tepid market demand.

read: Outlook for the shilling point to a stable currency

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