KAMPALA: The Ugandan shilling rose on Wednesday buoyed by a shortage of the local currency, and was seen strengthening after yields on government debt increased.
At 1119 GMT commercial banks quoted the shilling at 2,600/2,610, stronger than Tuesday's close of 2,615/2,625.
"The market is very short on shillings and consequently the local unit is getting a lot of support," said Ahmed Kalule, trader at Bank of Africa.
Kalule said the shortage had pushed up the cost of overnight funds to an average of 12 percent, up from around 8 percent when the market is sufficiently liquid.
On Tuesday, the central bank or Bank of Uganda sucked 159 billion shillings ($61.15 million) out of the market via a seven-day repo, he said.
The shilling is seen as having a firm medium-term outlook, helped by an upward trend in yields on government debt.
At Wednesday's Treasury bill auction, rates rose across all tenors with the benchmark 91-day paper fetching a weighted average yield of 10.9 percent from 10.6 percent realised at the previous sale.
"I think we'll be seeing more inflows from offshore people lured by these rates," said a trader at a leading commercial bank.
"On the other hand we have very limited corporate demand. Overall, I would bet on further (shilling) strengthening."
The shilling is also seen stronger after a court overturned an anti-gay law that drew Western criticism and halted aid payments.
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