Oct. 25 (Bloomberg) -- Uganda’s shilling strengthened the most in almost four months and led gains worldwide as banks sold dollars amid a shortage of the local currency.

The currency of East Africa’s third-biggest economy appreciated as much as 2.8 percent, the most since June 30, to 2,713.13, and traded 2.5 percent stronger at 2,720.50 by 3:46 p.m. in the capital, Kampala, the strongest level since Aug. 10, according to data compiled by Bloomberg.

“We are seeing offshore investors selling off the dollar because of the strengthening shilling,” Walter Mananu, a currency trader at Bank of Africa Uganda Ltd., said by phone from Kampala. “There is low demand for the dollar as people are short of shillings.”

The Uganda central bank’s Oct. 4 increase of its benchmark interest rate by four percentage points to 20 percent has cut liquidity, Mananu said. The bank raised its rate to curb inflation at an 18-year high and bolster the shilling, which reached the weakest since June 1993, on Sept. 23.

--Editors: Ana Monteiro, Linda Shen

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