Ugandan shilling weakens after central bank rate cut

By Elias Biryabarema

KAMPALA, June 4 (Reuters) - The Ugandan shilling UGX= weakened modestly on Wednesday after a surprise decision by the central bank to cut its key lending rate for June.

ID:nL6N0OL259

At 1308 GMT, commercial banks quoted the shilling at 2,560/2,570 to the dollar, compared to Monday's close of 2,550/2,560. Tuesday was a holiday in Uganda.

"Those who were short are moving fast to go long on their dollar positions," said Ahmed Kalule, trader at Bank of Africa. "The clear signal is that the shilling is headed for a bearish tone especially after hints of further easing that the central bank gave away."

Bank of Uganda, the central bank, cut its benchmark Central Bank Rate (CBR) by 50 basis points to 11 percent for June.

Governor Emmanuel Tumusiime-Mutebile said risks from political instability in some trading partners, a reference to conflict-torn South Sudan, and a weak agricultural sector meant Uganda would have trouble attaining the 7 percent growth rates of previous years. He hinted at possible further rate cuts.

"You have yields dropping, a lot of liquidity in the market and then a rate cut ... It's a perfect storm for the shilling," said Robert Mpuuga, trader at Housing Finance Bank.

Yields on government debt have slipped at recent auctions, which traders say will deter interest from offshore investors.

Mpuuga said the currency slide was being slowed by central bank moves to mop up excess liquidity.

UGX Spot Rate..... UGX=

Ugandan Shilling Money Guide.... UGX/1

Calculated Cross Rates.......... UGXX=

Deposits..................... UGXDEPO=

Deposits & Forwards............. UGXF=

Uganda Equities Guide....... UG/EQUITY

Uganda All Share Index........ .ALSIUG

Shilling background ..... UGX/BKGDINFO

Ugandan Debt Guide............ UG/DEBT

All Uganda Bonds............. 0#UGTSY=