Central Bank to create intervention rules for foreign exchange market

May 23, 2018 (LBO) – Sri Lanka’s Central Bank is to introduce several rules, the officials need to follow when they are intervening in the foreign exchange market, Central Bank Governor Indrajit Coomaraswamy said.

Speaking at a recent event, Coomaraswamy, however, said Central Bank’s intervention in the forex market will only be limited to smooth the volatility in the market.

“We are working towards having a set of intervention rules which would then make clear to everybody as to when and how the central bank would intervene in the market,” Coomaraswamy said.

Coomaraswamy said new rules will make the intervention process much more transparent than what is practicing currently.

Governor said the Central Bank had to intervene in the market recently as they saw the forex market is more volatile than warranted in terms of the macro fundamentals.

“The exchange rate was under pressure recently, but we don’t really see any reason why that should be so,” Coomaraswamy said.

“If you look at the fundamentals, the reserves were at a record level, the real effective exchange rate index is now at about a hundred,”

“So there aren’t any fundamental reasons why there should be this pressure but there are external developments in other currencies. But we still saw volatility than warranted.”

Governor added that having not intervened on the selling side of the forex market since March 2017; recently they pumped some dollars into the market to stabilize the exchange rate.