June 25, 2013 (LBO) – A recent weakness in Sri Lanka’s rupee is unlikely to worsen inflation as the currencies of key trading partners, especially India have fallen further, Central Bank Governor Nivard Cabraal said. Analysts say rupee has tended depreciated in recent weeks partly because sometimes it stayed out of from forex markets, when the liquidity eventually generated import demand.
After defending the rupee through unsterilized interventions as the rate moved towards 127 rupee levels against the US dollar for most of the year, the Central Bank this month allowed the rupee weaken as much as 129 to the US dollars with excess liquidity remaining in the banking system.
The rupee was relatively strong in May against the US dollar after the Central Bank withdrew liquidity from the banking system in late April.
Meanwhile there has also been some selling by foreign investors in bonds amid an international pull back from emerging markets, but there have been no unusual exits from the country, Cabraal has said. Foreign investors have instead tried to shorten the maturity of their portfolios.
Other than weaker state revenues, the usual domestic factors that pressures the currency through eventual centr