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Uganda Shilling Firm after Central Bank Lending Rate is Held 3-May-2012

The Ugandan shilling rallied nearly one percent against the dollar on Thursday, a day after the central bank left its policy rate unchanged due to a bleak inflation outlook.

Policymakers left the Central Bank Rate (CBR) at 21 percent for this month, citing risks to inflation from surging food prices and uncertainty around future direction of oil prices.

At 0803 GMT commercial banks posted the shilling at 2,475/2,485, up from Wednesday's close of 2,480/2,490.

"The rate decision signaled BoU (Bank of Uganda) is very keen on keeping the shilling supported so that's weighing on positions players are taking," said Peter Mboowa, a trader at KCB Uganda.

Analysts say BoU's decision to hold its key lending rate for the second month in a row will keep yields on Ugandan debt relatively attractive for offshore investors.

Hard currency flows from foreigners investing in government securities are a key source of support for the local currency in an economy with a weak export base.

A trader at a leading commercial bank said the shilling was also being boosted by dollar conversions from offshore traders who participated in Wednesday's Treasury bill auction.

"I think there was a healthy level of (debt) uptake by offshore investors judging by the conversions we're seeing," he said.

Reuters

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