ECONOMYNEXT - Sri Lanka's central bank would probe market transactions Central Bank Governor Indrajit Coomaraswamy said after the rupee fell sharply in late April and May after a bout of money printing by the central bank to enforce low rates.
The central bank has spent 136.5 million dollars intervening, but about 30 million dollars had also been purchased, he said.
"We want to look at the transactions and understand the behaviour," Governor Coomaraswamy said.
The central bank wanted to give more flexibility to the market, but participants have to respond accordingly, he said.
Long-time central bank watchers however have pointed out earlier that the central bank's trigger happy domestic operations department and its tendency terminate repo deals and inject money is at the heart of balance payments trouble in Sri Lanka.
Analysts also say banks that borrow from reverse repo auctions and windows and give credit with printed money creates demand pressure.
Banks that give loans with window cash, or primary dealers who bid for securities auctions with window cash) may also put pressure on the currency by overtrading.
The central bank has spent 100 million dollars in unsterilized interventions, effectively mopping up about 15 billion rupees it printed to create the panic in the rupee. Emerging information also seem to show that a repayment of maturing government debt in the first week of April may also have been re-financed with created money.
Governor Coomaraswamy says the central bank wants to look at all aspects.
Latest data showed that private credit surged to 122 billion rupees in March, up form around 60 rupees billion a month earlier. If banks make loans with printed money the rupee will come under pressure.
No forex dealer, or even an investor like George Soros can bring down a currency unless the domestic operations of the central bank gives new money to speculate against a currency peg. (Colombo/Mar11/2018)