KAMPALA - - The Ugandan shilling firmed slightly on Wednesday after the central bank drained liquidity and market confidence was boosted by Tuesday's surprise rate hike.
At market close, commercial banks were quoting the shilling at 2,568/2,578, stronger than Tuesday's close of 2,570/2,580.
Sage Daniel Muganza, a trader at Centenary Bank, said central Bank of Uganda (BoU) had issued a seven-day repurchase agreement worth 187.5 billion shillings.
"The repo (repurchase agreements) has sucked out excess shillings which has helped the unit to gain some value,"he said.
"But also the rate increase has boosted market confidence in it (shilling) because it means the recovery in credit flow is now likely to take much longer."
On Tuesday the also surprised markets by hiking its benchmark Central Bank Rate (CBR) to 12 percent for this month from August' s 11 percent.
Although consumer prices surged last month, analysts had expected the BoU to maintain the rate, with a hike seen as an imprudent move since it would stifle credit flow and weaken already fragile economic activity.
"I don't think the shilling will extend this rally in the coming days because at the current level it should be a good buying level (of dollars) by importers," said Faisal Bukenya, head of market making at Barclays Bank Uganda.