Apr 25, 2012 (LBO) – Sri Lanka’s rupee will be supported by inflows which are expected to be sold in the market ending current speculation and the Central Bank has space to provide dollars for oil if needed, Governor Nivard Cabraal said. Governor Cabraal said the Central Bank was ready to supply dollar for oil if needed and the monetary authority was expecting to end dollar supplies because the need was gradually disappearing and not because they did not have reserves.
“We have space to provide dollars for oil if necessary,” Cabraal said.
“At the moment they are getting enough in the market.”
He said from March the number of import letters of credit being opened had dropped sharply indicating that policy measures were taking effect.
The central bank has also built up reserves in the last few weeks, he said.
Central Bank’s Treasury bill stock has to drop from a high of 265 billion rupees in mid April to a little over 240 billion rupees while liquidity remained in the system indicating a build up foreign reserves from dollar inflows.
Persistent excess liquidity levels may also point to slower loan growth, giving room for the monetary authority conduct open market operations more aggressively, analysts say.
Aggressively mopping up of excess liquidity will reduce space for banks to grant future loans reducing imports and also push up overnight interest rates closer to the 9.75 percent reverse repo rate giving full effect to a recent rate hike.
“We are very clear about the inflows that are coming,” he said.
“Despite all that people still speculate and importers will get un-necessarily hurt. Exporters will lose a huge opportunity.”
On Wednesday the rupee weakened to a new low of 132.80/133.10 against the US dollar, down from 132.20 a day earlier, trading freely, dealers said.
Sri Lanka’s state-run Bank of Ceylon is expected to wrap up a 500 million US dollar bond later this week and part of the money is expected to be sold in the market.
Official sources also say that a remittance relating to an investment to build a Sheraton branded hotel in Colombo is also expected soon.
Dealers have said that some exporters were holding back expecting the rupee to depreciate further with the central bank also due to stop sales of foreign exchange for dollars.