ECONOMYNEXT – Sri Lanka’s rupee currency was quoted 240/255 per US dollar in late afternoon trade hours after the central bank chief at a meeting bankers and confirmed that the currency is floated.
“The currency is floated,” Central Bank Governor Nivard Cabraal told EconomyNext on Wednesday after only bids were placed on Tuesday at 230 following the central bank said a 200 to the US dollar non-credible peg had been abandoned.
“Give it a day or two.”
The central bank had a meeting with bankers on Wednesday to explain that the 230 to the rupee was guidance.
“The governor said the currency is now floated and now the rupee bid at 240 (to the dollar) and the selling is quoted around 255,” a dealer said.
“But due to lack of proper directions from the central bank, nobody has traded.”
Two other dealers confirmed the rates.
Though importers are willing to buy at higher rate, dealers are reluctant to place orders.
“There was no trading today as everybody was surprised with the move. We expect strong trading tomorrow with the available US dollars in the market,” another dealer said.
“It will take some time for the market to adjust and return for normal trading.”
Another dealer said the market liquidity was only 250,000 US dollars at the time of 240/255 rupees per dollar was quoted.
A float stabilizes currency by ending sterilized interventions (giving reserves and printing money to enforce an low policy rate) but economists have warned that the current policy rate of 7.50 is too low to stabilize the currency or to operate a floating exchange rate with an inflation-determined monetary base (inflation target).
A surrender requirement of banks being asked to 25 percent of exporter and worker remmittances to the central bank also creates new money (alters the monetary base) and takes away dollars needed to stabilize the exchange rate at the same time. (Colombo/Mar09/2022)