Sri Lanka rupee looks for direction amid IMF talks

April 03, 2009 (LBO) – The Sri Lanka rupee held steady against the US dollar in intra-day trading around 116.00 rupees Friday days after an International Monetary Fund mission wrapped up talks in Colombo, and a bailout expected within weeks. “An IMF mission is back to Washington and continues discussions with the authorities on the latest economic developments and the economic program to be supported by the IMF to improve the country’s balance of payment conditions,” a Fund spokesperson told LBO.

Analysts expect a bailout or ‘standby arrangement’ to be approved by the executive board of the IMF and the first tranche disbursed as early as the last week of April or early May, though Sri Lankan authorities are tight lipped on the deal.

Prior Action

A key requirement for the success of an IMF deal is for a central bank to stop intervention in the foreign exchange market which will allow the exchange rate to adjust and the monetary system to reach equilibrium.

A state bank that usually acts for the monetary authority stopped offering dollars at the defended rate of 114.25 rupees last week, while talks with an IMF mission in Colombo were firming up.

The rupee has since traded at a life low of 116.10 against the g