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Sri Lanka rupee intervention rate upped to 134.15 to US dollar

ECONOMYNEXT – Sri Lanka’s authorities set the rupee intervention rate at 134.15 to the US dollar Wednesday strengthening the currency, a day after it was dropped to 134.25, dealers said.

Sri Lanka’s forex markets now wait for the daily intervention rate to be indicated by the authorities, a practice that was prevalent in the 1990s and abandoned with the float of the currency in 2001.

The Central Bank released nearly 300 billion rupees of excess liquidity dammed up by term repo deals, to keep rates down since the last quarter of 2014 triggering credit and unsustainable imports.

In April policy rates were cut three months after a negative shock was delivered to the credit system from a budget in January which sharply raised state salaries and subsidies and cut prices of fuel and other goods adding demand into a credit system that was already recovering.

Since the beginning of June the Central Bank had bought 91 billion rupees of Treasury bills outright adding more demand, firing credit and imports.

Last week reverse repo auctions were started after overnight rates spiked to 6.50 percent when excess liquidity reduced.

Banks and dealers now bid for auctions of overnight money at 6.2 percent, closer to the 6.0 percent floor of the policy rate corridor which has a ceiling of 7.5 percent.

On Wednesday 2.7 billion rupees at 6.15 percent were injected to the market. Overnight gilt backed repos traded at 6.15/25 percent and clean money was quoted at 6.25/30 percent before the cash auction.

Analysts have pointed out that Sri Lanka’s Central Bank has a strong record in triggering balance of payments crises by delaying rate rises when credit demand goes up. (Colombo/Aug26/2015).





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