Oct. 31 (Bloomberg) -- Uganda’s shilling strengthened to a more than three-month high against the dollar, heading for the first monthly advance in six months, as banks sold the U.S. currency because of a shortage of shillings.

The currency of East Africa’s third-largest economy added 1.2 percent to 2,580 per dollar, the strongest level since July 20, by 3:14 p.m. in Kampala, the capital. The shilling has appreciated for a seventh day, taking its rally in October to 10 percent, the most among more than 170 currencies tracked by Bloomberg after Brazil’s real.

“We are seeing continued interbank selling of the dollar and yet customers are still shying away because they don’t have shillings,” Taib Lubega, a currency trader at Stanbic Bank Uganda Ltd., said by phone from Kampala. “Non-governmental organizations are converting to pay salaries and other end-of- month obligations.”

Uganda’s shilling has gained 11 percent since it reached 2,897.50 on Sept. 23, the weakest since June 1993. A surge in food and fuel prices pushed annual inflation to a more than 18- year high of 30.5 percent in October, from 28.3 percent in September, the Uganda Bureau of Statistics said today.

The shilling may rally further this week as the central bank’s offer of 95 billion shillings ($37 million) of three-, six- and 12-month bills is expected to attract offshore investors because of attractive yields, Lubega said. Three-month borrowing costs were 21.049 percent at a sale on Oct. 19, compared with 21.415 percent on Oct. 5, the highest since at least March 2005, according to data compiled by Bloomberg.

--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