Bloomberg News

Uganda Shilling Gains Most in Week as Rate Increase Cuts Supply

October 05, 2011

Oct. 5 (Bloomberg) -- Uganda’s shilling appreciated the most against the dollar in more than a week after the central bank raised its key interest rate by four percentage points to curb inflation, which is at a more than 18-year high.

The currency of East Africa’s third-biggest economy gained as much as 1.4 percent to 2,824.70 per dollar, the most since Sept. 26, and traded 0.4 stronger at 2,852.50by 10.46 a.m. in the capital, Kampala, according to data compiled by Bloomberg.

The central bank raised the rate to 20 percent from 16 percent in August after the inflation rate surged to 28.3 percent in September. The interest rate was introduced in July at 13 percent.

“All this gain is because the Bank of Uganda raised the central bank rate, which it is using to mop up liquidity,” Ahmed Kalule, the head of currency trading at Bank of Africa Uganda Ltd., said by phone from Kampala. “Banks and other companies are selling dollars to raise shillings in the wake of a tight market.”

Uganda’s central bank is offering 95 billion shillings ($33 million) of three-, six- and 12-month bills today. The yield on 91-day bills climbed to 17.412 percent at Sept. 21’s sale, the highest since at least March 2005.

Uganda’s shilling reached 2,897.50 against the dollar on Sept. 23, the weakest since June 1993, as inflation increased and on concern Europe’s debt crisis will weaken riskier assets further. The currency slipped 19 percent this year to the dollar, making the second-worst performer in the period after the Kenyan shilling, which fell 21 percent.

--Editors: Ana Monteiro, Peter Branton

To contact the reporter on this story: Fred Ojambo in Kampala at fojambo@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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