Ugandan shilling flat vs dollar, awaits rate decision

KAMPALA, July 2 - The Ugandan shilling traded flat against the dollar in thin volumes on Monday as investors awaited Tuesday's central bank rate decision for direction, traders said.

At 1155 GMT commercial banks in Kampala quoted the currency of east Africa's third largest economy at 2,471/2,481, unchanged from Friday's close.

Some market players expect the central Bank of Uganda's (BoU)'s Monetary Policy Committee to cut 100 basis points off its key Central Bank Rate (CBR) for the second month running after inflation slowed for the fourth consecutive month in June.

"The market is stable currently but the general outlook tone is bearish for the shilling as the market anticipates a CBR cut," said Robert Nyehangane, head of treasury at Housing Finance Bank.

"We might see the shilling drop through the 2,500 mark this week unless the central bank intervenes to support it."

Falling food prices helped cool price pressures further last month, slowing the year-on-year headline inflation rate to 18 percent from 18.6 percent in May. It hit a peak of more than 30 percent in October.

The shilling was generally unmoved by the last rate cut in early June, when the regulator cut its key rate to 20 percent. A rate cut in March, however, which was deemed premature by the market, triggered an 8 percent slide in the local currency.

"Also with corporate companies now done with their full year tax payments, we expect them to start coming to the market again and exert (dollar) demand and that will pressure the shilling," said Faisal Bukenya, head of market making at Barclays Bank.