Sri Lanka rupee held amid reserve outflows, monetization

ECONOMYNEXT – Sri Lanka’s rupee strengthened to 140.15/20 in intra-day trading in the spot forex market Friday after opening at 140.40/60 levels, dealers said, as data showed continued reserve outflows.

This week the Central Bank rejected bids from real buyers at a Treasuries auction, which if repaid with printed money will put further pressure on the exchange rate or result in foreign reserve losses if the newly minted money is redeemed in forex market.

Interbank liquidity data shows that continued interventions are being made to redeem rupees in forex markets, though the usual state banks that intervene are not visibly active.

Over the last five weeks, more than 400 million US dollars may been spent to meet debt repayments and import demand from printed money, analysts who closely track the monetary system in the country say.

Sri Lanka has printed more than 186 billion rupees since June to avoid sovereign default, indirectly appropriate forex reserves to repay foreign debt, or meet the import demand coming from printed money. (Colombo/Oct09/2015)

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