Ugandan shilling stable after key policy rate kept on hold

By Elias Biryabarema KAMPALA (Reuters) - The Ugandan shilling was stable on Wednesday after the central bank maintained its key lending rate for this month, saying it expected a recent surge in inflation to start ebbing in the next few months. At 1117 GMT, commercial banks quoted the currency of east Africa's third-largest economy at 2,555/2,560 to the dollar, unchanged from Tuesday's close. "I think the market has bought into the (central bank) governor's message that inflation is temporary," said Ahmed Kalule, trader at Bank of Africa. "Players expect no sharp movements on either side of the local unit following that neutral policy position." Bank of Uganda (BoU) left its benchmark Central Bank Rate (CBR) unchanged at 12 percent with the bank's governor, Emmanuel Tumusiime-Mutebile saying the high food costs that have triggered a spike in annual inflation are likely to start slowing by the end of this year. Last month Uganda's annual headline inflation rose to a 13-month high of 8 percent from August's 7.3 percent. This prompted market speculation a rate hike was on the cards, a move seen as potentially yielding gains for the local currency. Ahmed Kalule said that while the shilling's outlook was stable, a marginal depreciation risk could come through from importers increasing their demand for dollars in the last quarter of the year. Importers normally stock up on dollars in the last quarter to pay for extra goods shipments for end-year holiday shoppers. Benon Okwenje, trader at Stanbic Bank, said despite price pressures, hiking the policy rate "would have sent a wrong message because private sector credit remains expensive". He said the shilling would likely oscillate between 2,550 and 2,580 in the short- to medium-term.