ECONOMYNEXT – Sri Lanka’s rupee was quoted at selling rates of 222 to 223.50 for telegraphic transfers and imports at most banks Monday, though authorities are set to provide some interventions, market participants said.
Sri Lanka’s larger private banks were offering to buy dollar telegraphic transfers at rates between 214 to 216 and sell around 222.
Foreign banks were offering to buy dollars at between 207 and 215 sell around 223.50.
The central bank is still announcing an official rate of 197/203 in its website for telegraphic transfers.
State-run Bank of Ceylon was quoting a rate of 198.50/203.00 in its website for 500 US dollars, down from 1,000 last week.
People’s Bank was quoting 198.50/202.99 for the similar volumes.
Sri Lanka has been injecting large volumes of liquidity through failed Treasuries auctions but not providing convertibility through dollars in the forex market, leading to a fall in the exchange rate.
There is no functioning spot market but limited convertibility was offered through sporadic interventions last week at prices ranging from 215 to 219, dealers said.
Banks were informed that 100 million US dollars each of convertibility would be would be offered by authorities through state banks this week.
Banks have to provide evidence and get it.
Forward cover has also been banned. Banks have also been ordered not to give more than 5 percent for depositors in dollar accounts and exchange controls have been tightened.
Analysts had warned that the liquidity injections strung across the yield through series of de facto policy rates in the form of ceiling rates in Treasury bills would hit the currency as soon as private credit picked up.
Money is mostly printed for this year’s budget deficit, which hit the forex market when their recipients, usually state workers buy goods.
Some bonds from past deficits are also turned into reserve money which then hit forex market when banks loan them to businesses or back the government to pay salaries and other expenses.
Sri Lanka’s central bank has raised the ceiling rate of Treasuries auctions and also the policy rate in the first policy correction that the market has seen since bond purchases to inject money began in 2019.
But bond market is still dysfunctional with bond investors trying to make sense of a series of controls and tightening measures. (Colombo/Aug30/2021)