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The Ugandan shilling edged higher against the dollar on Wednesday, buoyed by greenback supplies from offshore investors participating in a Treasury bill auction and the central bank's decision to keep interest rates unchanged.
Traders said the Bank of Uganda (BoU)'s decision to leave its key lending rate unchanged for a second straight month was likely to keep the local currency stable in the coming weeks.
The BoU held its Central Bank Rate for May at 21 percent despite a consumer price index fall last month, saying risks from high food prices and a possible oil supply shock still posed inflationary pressures.
Commercial banks in Kampala quoted the currency at 2,490/2,500 to the dollar, stronger than Monday's close of 2,498/2,508.
Markets in Uganda were closed on Tuesday for a holiday.
"Most corporates exhausted their (dollar) demand at month-end, while we're seeing some conversions by offshore investors who participated in the auction," said Ahmed Kalule, a trader at Bank of Africa.
"So the two factors have helped push up the shilling a little bit," said Kalule.
Results for a 120 billion shillings ($48 million) Treasury bill auction on Wednesday showed heavy demand for the 364-day paper, even though the short end was snubbed.
The Ugandan currency has stabilised at around 2,500 to the dollar for about a month, ever since the central bank halted its monetary policy easing cycle in April.
Analysts say the central bank's decision to extend its policy easing pause is likely to maintain offshore investor appetite for Ugandan debt and keep the shilling supported.
"It was a relief for the market because possibly a cut would have been premature," said Leonard Ogenworth, a trader at Housing Finance Bank.
"So I am seeing market sentiment growing confident for the shilling, but the overall tone going forward should be stable."
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