July 20, 2012 (LBO) – Sri Lanka’s rupee made steep gains against the US dollar rising as much as 131.50/80 in late morning trade, after opening around 132.70/133.00 levels ahead of approval of proceeds from a bond sale. The International Monetary Fund’s executive board is expected to complete the last review of a 2.5 billion US dollar bailout package later today in the US.
Corrected- billion dollar bond Sri Lanka sold a billion dollar bond earlier in the week and proceeds are expected in the island next week.
In the recent past proceeds of large capital inflows had tended weaken the currency peg as the central bank bought dollars and pumped the banking system full of rupees, when credit growth was still high.
The Central Bank has however kept policy reasonably tight for several weeks running, and even sold a small amount of its Treasury bill stock outright, (a sterilized purchase of foreign currency) a move if continued steadily, can send the rupee zooming up.