Sri Lanka rupee closes at 139.80/85 to dollar in forex markets amid money printing

ECONOMYNEXT – Sri Lanka’s rupee closed at 139.80/85 against the US dollars in the spot forex market Monday down 139.30/50 to a day earlier, dealers said, as debt monetization continued to pressure the currency.

The rupee opened at a 139.35/55 levels and slid to 139.95 to the US dollar when a state bank which acts for the monetary authority sold dollars.

The rupee closed at 139.80/85 to the US dollar Monday.

Sri Lanka attempted to float the rupee on September 04, by ending full peg defence ending a recent practice of quoting a daily reference rate sending the rupee down from 134.75 in a bid to ‘float’ the rupee.

A float succeeds by ending a vicious cycle of sterilized interventions, a process involving printing new money to fill liquidity shortages generated by peg defence.

Sri Lanka tried to float the currency without addressing the core problems that triggered the balance of payments crises in the first place which was too low interest rates and a too high state domestic borrowings.

Though government debt is now auctioned its benefit has been nullified by undermining auctions in the short end by the creation of central bank credit (printed money).

However last Wednesday the Central Bank rejected an entire Treasury bill auction, injecting the equivalent of over 200 million dollars of printed money in the banking system by Friday.

Our economic columnist Bellwether say the Central Bank has to either sell 200 million dollars from its reserves to extinguish the liquidity or sell down its Treasury bills stock to prevent a further meltdown of the rupee.

Sri Lanka’s rupee has come under pressure from central bank manipulations of interest rates over the past year first by releasing liquidity held back by term repo deals and then by outright printing of money by acquiring domestic assets in the form of Treasury bills.

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Over the past three months around 150 billion rupees had printed. (Colombo/Sept14/2015)

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