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Sri Lanka rupee closes marginally higher with intervention

ECONOMYNEXT – Sri Lanka’s rupee ended around 168.50/70 to the US dollar marginally up from 168.65/169.00 to the dollars a day earlier, market participants said amid official intervention.

Sri Lanka central bank Governor Indrajit Coomaraswamy has said he does not want to defend a particular rate but will intervene to curb volatility.

Once liquidity shortage has developed in the system, further currency defence does not help unless rates are allowed to go up. If a central bank defends a policy rate, it has to inject cash to keep rates down.

Governor Coomaraswamy was quoted as saying that the governing board of the central bank was reluctant to raise rates, because growth was fragile.

On Friday the central bank injected 28 billion rupees through an overnight reverse repo auction at 8.10 percent, 40 basis points below the tool it can use to strengthen the currency without a formal rate hike.

The central bank has kept the market short only for 5 days, which is helpful to strengthen the currency. (Colombo/Sept21/2018)

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