Sri Lanka ‘moral suasion’ spot US dollar weakened to Rs133.10

COLOMBO (EconomyNext) – The US dollar has been allowed to weaken to 133.10 rupees in the spot market from 132.90 by the authorities, who are controlling the rate through moral suasion, dealers said.

There is no real trading at the price, but the Central Bank acts as a seller of last resort for banks which do not have any dollars at the so-called ‘moral suasion’ spot.

In the spot market settlement are made two days later. Trading in forward markets are also controlled.

The one month forward is controlled at 134.80 to the US dollar. On Thursday after briefly signalling that the one month forward dollar would be allowed at 134.90, it was brought back down to 134.80, dealers said.

Sri Lanka’s rupee has come under pressure from September 2014 when state and private credit spiked suddenly and a revised budget in 2015 expanded current spending with a sharp increase in state wages.

The Central Bank also released large volumes of liquidity to the interbank market. In April the Central Bank also cut rates.

Based on interest rate differentials the implied ‘synthetic spot’ rate 134.14 rupees.

Update II/Corrected rates

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