ECONOMYNEXT – Sri Lanka’s rupee was allowed to fall 15 cents to 134.25 to the US dollar by authorities, dealer said while data showed that rupee liquidity was being steadily injected to keep interest rates down and increase pressure on the currency.
State banks which usually act for the monetary authority further restricted giving dollars at the official 134.25 rupee intervention rate in the spot market and lenders are paying exporters as much 136 rupees to buy dollars, dealers said.
Sri Lanka’s central bank generates balance of payments pressure every few years and this year’s event was forecasted and followed ball-by-ball by economic analysts for several months.
On Tuesday the Central Bank’s Treasury bill stock, which is a proxy for money printing rose to 92.4 billion rupees, up from 66 billion rupees on July 30, while excess liquidity fell to 43 billion rupees as dollar interventions continue to suck up liquidity, indicating further forex reserve falls.
The Central Bank began reverse repo auctions last week to sterilize forex sales, prevents rates from moving up, in a slight deviation from outright purchases of Treasury bills through which credit has been finally accommodated earlier, analysts say.
A new policy rate of 6.2 percent has been within the 6.0 and 7.5 percent band through the auctions, instead of a market clearing rate closer to the 7.5 percent ceiling as would have been expected amid liquidity shortages, with dealers happily bidding for cash closer to the 6.0 percent rate.
The fall of the peg to 134.25 came a day after the rate was lowered to 134.10 to the US dollar. (Colombo/Aug25/2015)