Sri Lanka rupee falls to new low Wednesday amid loose money

ECONOMYNEXT – Sri Lanka’s rupee fell to a new record low of 144.25 to the US dollar on Wednesday while accepted a lower-than-offered volume at the weekly Treasuries auction raising fears of more money printing, though rates edged up.

The rupee was quoted in late afternoon trade at 144.20/30 to the US dollar.

At the weekly Treasuries auction the 3-month yield rose 07 basis points to 6.45 percent, the six month bill yields rose 14 basis points to 6.83 percent and the 12-month yield went up 19 basis points to 7.30 percent.

The debt office, which is a unit of the Central Bank offered 22 billion rupees of bills for rollover and accepted only bids of 7.4 billion rupees.

An estimated 29.8 billion rupees of bills are maturing this week, raising fears that more money will be printed.

Last week about 40 billion rupees were printed though some of the excess money was later sterilized, in a move which some analysts say is similar to what the Reserve Bank of Zimbabwe used to do.

However even sterilizing after printing money is better than allowing it to keep pressuring the rupee and driving credit.

The central bank is due to release its December monetary policy decision later today.

Though many market participants are expecting a rate hike, some say there is a chance that the monetary authority may trot out yet another excuse not to raise rates like it had been doing in recent months.

If money is being printed through Treasury bill auctions in large volumes, analysts say rate hikes will not help hold the rupee.

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However many commercial banks have on their own raised deposit rates to generate real deposits to give loans and help prevent the economy from being de-stabilized further despite the central bank cutting rates in April.

December is not a month that the rupee comes under pressure when monetary policy is prudent.

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