Sri Lanka rupee opens flat, excess liquidity up

ECONOMYNEXT – Sri Lanka’s rupee was quoted barely changed at 148.10/40 to the US dollars in the spot-next market after opening Wednesday, following dollars sales by a state bank a day earlier, dealers said.

A state bank, which usually acts for the monetary authority sold dollars, taking the rupee up to 147.85 on Wednesday, dealer said. The rupee closed around 148.20 levels.

Wednesday data showed that interbank liquidity had risen to Rs25 billion, indicating that the Central Bank was perhaps purchasing inflows to the government, market watchers say.

However, liquidity had not been sterilized (mopped up), which means any reserve accumulation will be temporary.

To prevent the rupee falling when liquidity turns into credit and imports, the Central Bank will have to sell dollars.

Economic analysts have warned that the rupee will fall under a deal with the International Monetary Fund unless ceilings are placed on domestic asset stock of the Central Bank as quantity targets, which will fall in tandem with net international reserve target floors.

Bond market dealers said there was foreign investor interest in two to five year bonds.

Two-year bonds maturing on 14.08.2018 were quoted at 11.40/50 percent Wednesday morning, down about 25 basis points from last week, and 5-year bond maturing on 15.10.2021 were quoted around 12.10/15 down about 10 basis points.

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