Sri Lanka rupee falls to a new low; overnight rates ease

April 19, 2007 (LBO) – The Sri Lanka rupee fell to a new low of 110.50 to the dollar in early trading Thursday dealers said, while short-term interest rates eased. The rupee had ended just short of 110 to the dollar earlier in the month with high rupee interest rates encouraging exporters to convert to the domestic currency early.

Overnight call rates which hit 50 percent a week ago eased to 15 percent as cash that left the banking system during the April festive season started coming back, dealers said.

Though the central bank has tightened monetary policy to block money printing easing pressure since January, analysts have pointed out that the rupee is technically overvalued by some 13.7 percent in real effective exchange rate terms due to inflation created earlier.

Economists say the rupee has to depreciate to restore Sri Lanka’s export competitiveness.

Sri Lankan authorities use the dollar as the intervention currency, maintaining a loose peg, and allow other currencies to fluctuate freely.

Last year, garment exports to the United States fell in absolute terms.

Pressure is also coming to the exchange rate from losses run by the pe