Sri Lanka rupee peg weakens, treasuries flat

Sep 07, 2011 (LBO) – Sri Lanka’s dollar peg weakened by another 10 cents to 110.20 rupees in the spot market, amid continued pressure on the domestic currency, dealers said. The monetary authority’s unofficial two way quote was dropped to 109.70/110.10 Wednesday, in the wake of an earlier drop of 10 cents Monday.

In the market the spot dollar was quoted 110.20/choice with no spread.

Analysts have said that at Sri Lanka’s current credit growth interest rates are not enough to sustain the existing exchange rate peg.

However dropping the peg by small amounts and continued defence of the peg at new levels has not brought results in the past.

In Treasuries markets, bill yields were flat across maturities. The 3-month yield was flat at 7.11 percent, the 6-month at 7.19 percent and the 12-month at 7.25 percent.

Pressure the rupee could be eased by allowing rates to move up.