KAMPALA: Uganda's shilling firmed on Wednesday after the central bank hiked its benchmark lending rate by 100 basis points, spurring players to convert some of their dollar holdings for a higher yielding local currency.
At 1132 GMT commercial banks quoted the shilling at 2,972/2,982, stronger than Tuesday's close of 2,985/2,995.
"We're seeing players doing conversions as they move into the local currency which is now higher-yielding," said Isaac Iga, chief dealer at Orient Bank.
"BoU (Bank of Uganda)'s declaration that they're determined to intervene to curb volatility has added to the positive sentiment."
The central bank raised its benchmark rate to 12 percent from 11 percent for first time since June last year, citing a need to stop core inflation from rising above their medium-term target of 5 percent.
The bank attributed the rise in core inflation to the depreciation of the shilling which is now 6.9 percent weaker against the dollar so far this year.
The BoU has directly intervened in the market and sold dollars at least ten times since January to try to slow the weakening of the shilling which touched its all-time record low of 3,016/3,126 on March 12.
Faisal Bukenya, head of market making at Barclays Bank, said there was still some appetite for the greenback from the energy and telecoms sectors but that overall the shilling was likely to trade on a firmer footing after the rate hike.
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