ECONOMYNEXT – Sri Lanka rupee closed at 138.90/95 to the US dollar in the spot forex markets Wednesday down from 134.75 when the authorities began an attempt to float the rupee and end sterilized forex sales.
The rupee opened at 138.40/60 to the US dollar on Tuesday and came close to 139.00 where a state bank nudged it upwards on Friday, falling for the fourth straight day amid excess liquidity in money markets.
At Wednesday’s auction all bids were rejected at an auction where 24 billion rupees of Treasuries were offered for sale.
If money printed to repay the bills excess liquidity in money markets will go higher from the current 60 billion rupees, firing demand and imports putting severe pressure on the rupee which had already been battered by debt monetized earlier.
Without intervention to mop up the rupees by spending foreign reserves, the rupee will be pressured further, analysts say.
Rejecting bids to inject money has helped worsen balance of payments crises earlier is one of the standard sets of tools that is used in Sri Lanka to hit the rupee, EN’s economic columinst Bellwether says.
Others include Treasury dollar surrenders, narrow net open position that force dollar sales to the monetary authority, partial intervention and full sterilization after the float. (Colombo/Sept07/2015)