The Bank of Uganda said on Monday it was intervening in the foreign exchange market by selling hard currency BOUG00, helping to push the shilling up to levels last seen nearly three weeks ago.

The Ugandan shilling UGX= slid to 2,327/2,331 per dollar on Monday before the central bank stepped selling an unspecified amount of hard currency. The rate reversed and the shilling hit a high of 2,295/2,300 per dollar, last seen on January 4.

At 1115 GMT, commercial banks in Kampala quoted the shilling at 2,300/10 against the greenback, up from Monday's close of 2,310/2,320.

The central bank has come into the market again today, said Lucas Ochieng of Orient Bank. I think they'll be happy if the shilling appreciates to below the 2,300 level.

The shilling sank to an all-time low of 2,395/2,400 per dollar last week as importer demand for dollars rose and both corporates and aid agencies held on to their greenbacks ahead of a presidential election on February 18.

The central bank sold $45.3 million dollars last week and said the shilling's sharp depreciation was down to offshore speculators and that it would continue to limit the impact of their activity through aggressive intervention.

There's still a lot of volatility in the market, said Faisal Bukenya, head of market making at Barclays Bank Uganda. If the volatility that we saw over the last week continues then we expect the central bank to intervene again.

The shilling fell an average 15.4 percent year-on-year between July and December 2010 and by 21.5 percent against the dollar in December 2010, according to the central bank.

Some analysts say the shilling could find support later in the year as Uganda is expected to start pumping oil in 2012 and the east African country is expected to attract related foreign direct investment inflows before then.

In the short term, more importer demand for dollars is anticipated.

Normally, towards the end of the month we would see corporate demand coming through so the shilling should be range-bound between 2,320-2,335, Ochieng said.