COLOMBO (EconomyNext) – Sri Lanka’s rupee was allowed to drop 20 cents to 133.90 to the US dollar in the non-existed spot market Tuesday, by authorities dealers said, while the 3-month forward dollar was quoted at 136.80/10 rupees.
In Sri Lanka there is no actual trading in the spot market as the country’s soft-pegged central bank is trying to control the exchange rate through various means, while keeping interest rates low.
The official indicative rate is used as a benchmark and also for seller of last resort deals by the Central Bank.
Based on the three month forward rate and interest rate differential the implied "synthetic" spot US dollar rate is now 135.05/42 rupees, dealers said.
Sri Lanka’s state credit in particular picked up from September 2014 pushing up imports, while low interest rates are also boosting consumption and undermining savings.
Interim accounts of state-run Bank of Ceylon showed that deposits have contracted in absolute numbers while credit raced ahead, though performance of private banks were better.
The drop Tuesday came after Finance Minister Ravi Karunanayake said there was "no pressure" on the rupee and foreign reserves had grown to at least 7.6 billion US dollars from 7.4 billion dollars at end April.
Economic analysts who watch inter bank credit levels closely say in May, state or private credit may have slowed, reducing the need for forex interventions during the month, though similar effects can also be found when petroleum payments are delayed.
Sri Lanka’s central bank has a strong record in creating balance of payments trouble for over 50 years.