Kampala — THE Ugandan shilling made history yesterday by leaping to the lowest level ever in the local foreign exchange market, trading for sh1,960 buying and sh2,125 selling against the American dollar.

The shilling's new record trading level is attributed to a spike in demand amidst very low supply.

"The Ugandan shilling is in free fall. It has lost over sh250 in just three days of trading. Corporate dollar demand is absent from the market but the demand for dollars is escalating," Asim Morvi a dealer at Jaffery Forex said.

He added that if the Central Bank does not intervene, the shilling will depreciate to new levels today.

The lack of supply amidst very high demand for dollars has weakened the shilling, causing panic and confusion in the market.

The local currency has fallen from 1650/1670 to 1960/2125 in the last ten days. Its lowest trading level against the dollar was 2010/2020 in 2003. Dealers said the Bank of Uganda's laxity to mop up excess liquidity in the market was partly to blame.

The dollar, at the other hand, gained strength after the approval of the $700b bail-out in the US. It has appreciated to a two-year high against all major currencies.

"We are cautious of our transactions because the dollar is volatile and it plays a central role in every economy", said one dealer.

"If the shilling depreciates further, most importers will close down, while export sectors like fisheries, flowers, coffee and cocoa will register higher returns.

Farmers' prices are expected to improve if the shilling continues to slide, he added.

Officials at the Central Bank could not be reached for comment.