Sri Lanka state banks sells rupee forwards, spot reference lowered to 145.25 to dollar

ECONOMYNEXT – Sri Lanka’s rupee was quoted at 147.80/148.00 to the US dollar in the one week forward market in mid-day trade Wednesday with a state bank that usually acts for the monetary authority selling at 148.05 levels, dealers said.

The so-called ‘spot reference’ an indicative rate for Sri Lanka’s non-existed spot rate was lowered to 145.25 rupees to the US dollar on Wednesday from 144.50 to the US dollar a day earlier.

On Tuesday intervention was seen in the spot next market at 145.25 to the US dollar helping strengthen one week forwards to 147.30 at the close after weakening below 148.00.

There was no trading in either spot or spot next markets. In late trading the rupee strenthend with state bank selling driving one week forwards up to 147.45 levels and was quoted around 147.50/70 to the US dollar.

Though Sri Lanka is under an International Monetary Fund program, it had gone into effect without a currency float as a prior action, with the rupee already collapsed from 130 to 147 over the past year.

In money market liquidity was short by 30 billion rupees over two days and the central bank’s Treasury bill stock jumped to 255 billion rupees, with a 20 billion reverse repo auction, with a state bank believed to be a key borrower.

The IMF program has set no ceilings on domestic assets of the central bank, which long term watchers of the country’s monetary authority see as the only effective tool to restrain its tendency to print money. However providing overnight liquidity instead of permament accommodation forces banks which are short to curb credit and generate deposits to end maturing mis-matches.

Under a ‘monetary policy consultation clause’ the central bank has been set an inflation target of 4.9 percent inner ceiling to for June, and inflation was already at 4.8 percent in May.

On a country-wide index inflation has already risen to 5.3 percent in June with a ‘core inflation’ mostly made up of non-traded goods rising 7.0 percent.

However over the past 16 months in generating the current balance of payments crisis and rupee collapse the central bank had given a series of excuses why rates should not be tightened. A recent rise in value added tax is likely to be cited as another excuse not to tighten policy, analysts say. (Colombo/June22/2016 – upated and corrected)

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