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Sri Lanka rupee falls to new low amid money printing

ECONOMYNEXT – Sri Lanka’s rupee fell to a new low of 139.30/50 to the US dollar in forex markets Friday as a fresh flood of printed money hit interbank markets.

The rupee closed at 138.95/05 to the US dollar on Thursday down from 134.75 a week earlier.

Sri Lanka started a process to float the rupee last Friday which could end a cycle of sterilized intervention, but the action had been undermined by outright debt monetization (money printing).

Nearly 30 billion rupees printed to repay maturing Treasury bills on Wednesday and avoid sovereign default, hit the money markets Friday. Excess liquidity rose to 84 billion rupees from 54 billion rupees.

The Treasury bill stock of the Central Bank which is a proxy for money printing climbed to 151 billion rupees on September 11, from 123 billion a day earlier.

The money could create pressure of over 250 million US dollars in forex markets over the money as they are loaned to the economy by banks or spent by those whose bills were repaid.

Sri Lanka’s fiscal and monetary policy has deteriorated in 2015 and outright monetization is taking place at a pace not since 2004. (Colombo/Sept/2015)

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