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Sri Lanka rupee falls to 200.75 to dollar in spot next

ECONOMYNEXT – Sri Lanka’s rupee fell to near 200.75 to the US dollar in the spot next market Tuesday, while one week dollars were quoted around 199/201 rupees, dealers said as excess liquidity dropped amid reserve outflows.

The rupee last closed in the one- week forward market at 198.00/199.00 to the US dollar on Monday.

Rupee last hit close to 200 to the dollar in March 2020.

Meanwhile the spot/three month swap traded at over 1.75 rupee discount, market participants said.

Amid record money printing and low rupee yields driven by so-called Modern Monetary Theory, Sri Lanka’s forward premiums inverted late last year, despite running the biggest balance of payments deficit in the country’s history.

Sri Lanka had also imposed surrender requirements on banks despite the deficit BOP and excess liquidity.

Surrenders to the central bank creates more liquidity while depriving dollars to the market to meet any previous excess liquidity that hits the forex market through the credit system.

“Ideally the dollars should be sold to the Treasury not the central bank, for existing rupees – rupees taken through Treasury auctions on which imports have already been curbed – without expanding reserve money,” ENs economic columnist Bellwether explained.

“The surrender requirement will create more pressure on the peg by generating excess liquidity and the central bank should be prepared to sell dollars to maintain the peg.

“These actions, like the import controls, exchange controls and price controls, will be un-necessary as long as Treasury bill auctions are successful.”

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However rates would then be higher.

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Analysts had warned that given the current monetary set up, any credit recovery will tends to tip the system over the edge. There is also a steady drain of reserves through the financial account.

Excess liquidity dropped to 139.5 billion rupees, from 181 billion rupees on Friday when about 9 billion rupees were printed through a failed Treasury bills auction.

In the secondary market bond yields remained unchanged on dull market trade, dealers said.

Dealers said the market witnessed slight selling pressure but the overall market remained unchanged.

Sri Lanka’s debt office is offering 45 billion rupees of bills to be sold in an auction tomorrow.

A bond maturing on 15.12.2022 closed at 5.80/90 per cent on Tuesday, up from 5.75/85 per cent at Monday.

A bond maturing on 15.11.2023 closed flat at 6.20/30 per cent on Tuesday.

A bond maturing on 01.12.2024 closed flat at 6.55/65 per cent on Tuesday.

A bond maturing on 01.05.2025 closed flat at 6.70/85 per cent on Tuesday.

A bond maturing on 15.02.2026 closed at 7.00/15 per cent, steady from 7.00/7.10 per cent at Monday.

A bond maturing on 15.08.2027 closed unchanged at 7.40/50 per cent on Tuesday from Monday.

A bond maturing on 15.05.2030 closed flat at 8.10/40 per cent Tuesday. (Colombo/March16/2021)

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