Sri Lanka rupee steady, cash short fades as CB acquires dollars

ECONOMYNEXT – Sri Lanka’s rupee was quoted at Rs145.55/65 to the US dollars in the spot forex market Tuesday, dealers said, as central bank acquisitions kept the currency from appreciating over the past month, and a liquidity shortage diminished.

A persistent liquidity shortage of about Rs50 billion generated from excess credit mopped up by dollar sales in forex markets, ended on Monday with the central bank absorbing Rs5.2 billion of excess liquidity.

The central bank’s domestic asset stock indicated by Treasury bills had fallen steadily to Rs222 billion on August 29 from Rs270 billion on August 15, as the monetary authority bought or swapped dollars to generate rupees and build up forex reserves.

The central bank, which injected Rs45 billion from reverse repo auction at 8.32 percent on August 16, injected only Rs10 billion on Monday.

The rate had edged up to 8.44 percent, still below the reverse repo policy rate of 8.50 percent. A monetary policy announcemnt is due later, on Tuesday.

On Tuesday, better managed banks thay were plus liquidity deposited Rs17.3 billion at 7.00 percent at the central bank’s window, while short banks borrowed Rs2.1 billion at 8.50 percent, in addition to the reverse repo volume.

Over the last two months, the central bank continued to provide overnight funds and did not finally accommodate liquidity shortages coming from dollar defence by the outright purchase of Treasury bills.

The practice forces banks to seek real deposits to cut their printed money borrowings from overnight facilities, eventually ending pressure on the rupee.

Banks are now borrowing deposits paying as much as 12.5 percent from the market, compared to 6 to 7 percent levels in 2015 when the central bank triggered a balance of payments crisis by releasing liquidity and printing Rs270 billion outright. (Colombo/Aug30/2016)

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