Sri Lanka rupee gains sharply in volatile trading; stocks up

November 22, (LBO) – Sri Lanka rupee zoomed to 106.05 in early morning trade Wednesday, two days after it hit an all time low of 109.40, after authorities took measures to take immediate pressure off the market, dealers said. Information reaching the market that petroleum bills would not be settled with purchases from the market in the near future, as well as moral suasion from authorities, helped prop the rupee up, dealers said.

The currency later settled around 107 to the dollar, while stocks were also up 14 points, ending a post budget losing streak.

This week Central Bank auditors visited the several banks, probing whether they were complying with trading restrictions, though buying pressure had come last week from state banks.

Banks have been warned by authorities earlier not to carry long positions for speculative purposes but to only engage in trade-backed transactions.

The Sri Lanka rupee had been under pressure and extremely volatile in recent weeks following two years of pent up inflation, which was not reflected in the rates because of tsunami aid flows.

The Central Bank has said it will no longer intervene against a fundamental movement in the currency and would only intervene to make orderly corrections.

But sudden sharp upward movements have not allowed the currency to stabilize, dealers say.

Exporters tend to hold back dollars when the currency shoots up as they do not want to convert at low rates, making subsequent corrections steeper. .