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Sri Lanka cuts policy rates as rupee falls to new low

ECONOMYNEXT – Sri Lanka has cut its policy corridor by 25 basis points taking the rate at which liquidity is injected to 7.0 percent and the rate at which excess liquidity is taken out to 6.00 percent as the rupee fell to new historic low.

“This decision will complement the measures taken thus far to ease market conditions, and enable the domestic financial market to provide further relief to businesses and individuals affected by the outbreak of the COVID-19 pandemic and restrictions placed to contain its spread within the country,” the central bank said in a statement late Friday.

A scheduled monetary policy review will not take place on April 09, 2020 as previously scheduled.

“However, the Monetary Board may review the monetary policy stance of the Central Bank and make necessary changes as and when required in consideration of economic and market developments.”

The central bank has made several helicopter drop style injections to money markets, despite having a soft-peg raising fears for monetary stability and the exchange rate at a time when the country is fighting to battle the spread of Coronavirus.

Another 50 billion rupee bailout facility has been arranged with central bank liquidity for Coronavirus hit businesses.

The rupee fell below 196 to the US dollar in the one week forward market Friday, while the one year rate fell further, taking the implied spot rate even lower, dealers said.

Related

Sri Lanka makes helicopter drops of new money despite soft-peg

The government has said more imports would be controlled and asked people to grow vegetables. In Sri Lanka there is a belief that monetary instability is linked to trade and not liquidity injections.
(Colombo/Apr04/2020)

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