Sri Lanka’s three month forward forex rate weakens; implied spot at new low

COLOMBO (EconomyNext) – Sri Lanka’s three month forward exchange was quoted at around 137.50 to the US dollar Wednesday, weakening the implied spot exchange rate to a new low of around 135.75 to the greenback, dealers said.

Sri Lanka has an indicative official spot US dollar rate where no real trading takes place at which was allowed to drop 20 cents to 133.90 to the US dollar on Tuesday.

Based on Wednesday’s three month forward rate of 137.50/138.00 the implied spot exchange rate taking into account interest rate differentials has weakened to around 135.75/136.30 rupees to the US dollar, dealers said.

The rupee has earlier weakened to around 135.60 levels in 2012 and 2013, dealers said.

Sri Lanka’s rupee has been under pressure from rising state and private credit growth amid record low interest rates and Central Bank liquidity releases.

However in May, liquidity levels have been stable, which may indicate that net outflows or total credit has reduced analysts say.

Due to restrictions on foreign exchange trading amid low interest rates and excess liquidity, uncertainty has spread among market participating, undermining the credibility of Sri Lanka’s de facto dollar soft peg.

 

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