Ugandan shilling firms after central bank tightens supply

KAMPALA - The Ugandan shilling firmed on Wednesday, after the central bank mopped up excess supply using repurchase agreements (repo), making it more expensive for commercial banks to hold longer dollar positions.

Commercial banks quoted the currency of east Africa's third-largest economy at 2,575/2,585, slightly stronger than Tuesday's close of 2,585/2,595.

"BoU (Bank of Uganda) did a repo today which ... allowed the unit to gain some ground," said Robert Mpuuga, trader at Housing Finance Bank.

"Weak demand (for dollars) from corporates and banks is also helping to energise the shilling."

The central bank does not usually say how much it has mopped up via repo agreements.

The shilling has traded in the 2,550-2,600 range this year, underpinned by the central bank's cautious monetary policy stance.

The bank held its benchmark lending rate at 11 percent for a second straight month at its policy meeting on Aug. 5, citing rising inflation risk, after cutting rates by 100 basis points in June. Inflation rose to 5.1 percent in the year to July.

Ahmed Kalule, a trader at Bank of Africa, said players were likely to hold off on taking big positions in the market pending the release of this month's inflation data on Friday.

"I don't see the inflation numbers changing in any major way that would prompt BoU to loosen or tighten its stance," he said.