Uganda hikes rates, currency holds near 1-month high vs dollar

Uganda hiked its main interest rate by a larger-than-expected margin of 1.5 percentage point to 14.5% at the policy review on Monday, but the currency as held near the previous session's gains.

The benchmark lending rate was at a low of 11% early this year and with the latest increase, the rate is at its highest since late 2012.

USD/UGX traded in the range of 3,220-3,240 on Monday, off Friday's low of 3,125, which was the Ugandan shilling's strongest in a month.

The pair had touched a high of 3,625 before losing momentum on Thursday, which was the shilling's weakest in several years.

The slide in the pair late last week helped an appreciation of 11% in the local currency, but it is still down 11% from the end of 2014. Last year, the shilling had fallen 13% against the dollar.

"The recent exchange rate depreciation has raised the risk of higher inflation... We'll tighten monetary policy to avert any prospects of higher inflation," Bank of Uganda governor Emmanuel Tumusiime-Mutebile told a news conference, according to a Reuters report.

The country's headline inflation rate is near 5%, which was less than 2% at the start of this year.