KAMPALA (Reuters) - Uganda's shilling climbed 0.4 percent against the dollar on Monday, lifted by scarce liquidity and traders said greenback inflows from offshore investors were likely to offer further support to the shilling this week.
Market players also expect significant offshore investor participation in a central bank Treasury bill auction on Wednesday, wooed by the relatively high yields.
At 0812 GMT commercial banks in Kampala quoted the shilling at 2,380/2,390, firmer than Friday's close of 2,390/2,400.
"Liquidity in the market remains tight ... we haven't had any injections from the central bank in days so the shilling has gained some energy from that," said Dickson Musoni, a Treasury dealer at KCB Uganda.
The currency of one of Africa's top coffee producers is up 4 percent against the greenback this year and is firmly off its record low of 2,901 hit in September, thanks to a round of policy tightening by Bank of Uganda (BoU).
BoU raised its key lending rate for four consecutive months from August before freezing the rate at 23 percent in December after a slowdown in inflation in November. Uganda's year-on-year consumer price index has been slowing since November, to reach 27 percent in December.
London-based Business Monitor International forecasts the shilling will trade at an average of 2,587 against the dollar this year, weaker than 2011's average rate of 2,538.
"The market anticipates an upsurge in inflows from foreign investors chasing after Wednesday's auction, so the market is betting on a strong shilling this week," Musoni said.
In a market report Stanbic Bank said month-end greenback inflows and subdued demand would support the shilling this week while Standard Chartered Bank said the local currency would oscillate between 2,370-2,430 against the dollar on Monday.