ECONOMYNEXT – Sri Lanka’s central bank does not have a pre-determined level to stop rupee appreciation, Central Bank Governor Nandalal Weerasinghe said, as the monetary authority continued to build reserves.
The central bank will not go against the market but was intervening to stop excessive volatility Weerasinghe told reporters Thursday.
The rupee can go up as well as down, under a ‘flexible exchange rate’, he said.
The central bank has allowed the rupee to appreciate from around 360 to the US dollar in March to around 290 to the US dollar up to now.
The rupee has been appreciating amid deflationary liquidity operations of the central bank. Currencies of reserve collecting central banks collapse when liquidity is injected to keep policy rates down, driving up credit growth without deposits. At the moment private credit is negative.
The central bank had bought dollars to build reserves and reduce excessively volatile moves of the rupee Governor Weerasinghe said.
In May alone 662 million US dollars were bought from the market, he said. Net purchases so far were 1,671 million US dollars, he said.
Some of the exchange controls (capital flow measures) would soon be removed. Another batch of import controls are also to be removed.
Sri Lanka’s gross foreign reserves at the end of May were estimated at 3.1 billion US dollars.
A budget support loan given by the Asian Development Bank was in the Treasury account, but the money will be sold to the central bank for rupees when the Treasury wants funds, Governor Weerasinghe said. (Colombo/June01/2023)