At 1020 GMT commercial banks quoted the currency of east Africa's third largest economy at 2,490/2,510, slightly stronger than Friday's close of 2,505/2,510.

"Demand (for dollars) from large importing firms has really not improved despite the rate cut," said Faisal Bukenya, head of market making at Barclays bank in Kampala.

"So confidence in the shilling has continued to improve because the market now thinks the dramatic surge in the demand for dollars might not materialize."

Analysts had broadly expected a fall in the local currency after the central bank cut its key lending rate for the fourth straight month, slashing the benchmark rate by 200 basis points to leave it at 15 percent.

The Bank of Uganda said the cut was aimed at spurring private credit growth and criticised commercial banks for failing to lower their own lending rates in line with the regulator.

"It's very clear credit isn't going to grow as fast as everyone anticipated, so I think that new sentiment is helping firm up the shilling," said Ahmed Kalule, a trader at Bank of Africa.

"In the short term we're now likely to see the shilling keep trading in a marginally stronger or stable position but in the medium term the easing will start having some impact and the shilling will lose some ground."