Sri Lanka rupee intervention rate lowered

Feb 26, 2009 (LBO) – An intervention rate quoted by a state bank in Sri Lanka’s US dollar spot market was raised to 114.25 rupees from 113.85 Thursday, and quotes in the value tomorrow market moved up to 114.95/115.10 rupees, dealers said. The rupee hit a low of 114.80 on Wednesday in the value tomorrow market, with spot trade confined to intervention deals with a state bank that usually acts for the monetary authority, at 113.85 rupees.

Banks with import bills who are willing to disclose customer information can buy dollars at the intervention rate.

Sri Lanka’s rupee had been pressured by sterilized intervention activities of the central bank since September with the monetary authority running down reserves and injecting liquidity in to the domestic money market.

Since sterilized intervention began the rupee has fallen from 108.00 to the dollar to today’s level.

By December Sri Lanka’s foreign reserves had also halved to 1.7 billion dollars according to official data.

Economic analysts have pointed out that the rupee has to be floated to break the sterilized intervention cycle and restore equilibrium in the economy.

Though the central bank let the rupee go several times, it had re-pegged the rupee at a new level instead of allowing a free float.

Market price discovery has been occurring mostly in the value tomorrow market in recent weeks, with the spot market (settlement two day later) being confined to intervention sales by a state bank at 113.85 rupees.