June 27, 2013 (LBO) – A sharp weakening of the rupee against the US dollar was unnecessary and there was no cause for concern Central Bank Governor Nivard Cabraal said as the rupee fell to one year lows. “There is no need for concern,” Cabraal said. “Those who buy at high prices will get hurt.”
The Sri Lanka rupee fell little over one percent against the US dollar Thursday, the sharpest fall since June 2012 according to data compiled by Bloomberg newswires.
In intra-day trade the rupee was quoted as low as 130.90 to the US dollar in the spot market levels not seen since November 14, when it was around 130.79.
In late trading the rupee was quoted around 130.65 levels, dealers said.
Concern that foreign investors were selling out of Sri Lanka was not borne out. Some investors were selling long term bonds and buying short term.
Cabraal said at this week’s Treasuries action foreign investors bought up to 15 billion rupees worth securities.
The rupee started to slide amid excess liquidity in money market and minimal intervention by the Central Bank.
Earlier in the year the central bank had intervened at around 127.00 and 125.00 to the US dollar.
A central bank can intervene safely in the forex market until excess liquidity disappears (unsterilized interventions), but a currency can slide rapidly when liquidity shortages start to be filled with fresh local money.
The Central Bank had been selling its Treasury bill stock down in June, after a pause in May which may help arrest the slide going forward analysts say. A central bank can kill liquidity either by dollars sales or bond sales from its own balance sheet.
Corrected Spot US dollar Rs130.90