Sri Lanka rupee stronger amid thin liquidity

July 23, 2013 (LBO) – Sri Lanka’s rupee was steady amid thin liquidity in the spot market against the US dollar for the second day in a row, with even cash market sales earlier in the day, dealers said. The spot US dollar was quoted around 131.50/55 after opening at 131.55/60 on Tuesday, dealers said. Cash sales were done at 131.45 levels in morning trade dealers said.

Excess liquidity in interbank markets dropped to 6.4 billion rupees Friday from 24.5 billion rupees a day earlier and money markets were tight on Tuesday after markets opened following a holiday, dealers said.

Overnight gilt backed repurchase transactions quoted around 8.20 percent and call money at 8.70 percent, not much changed with the market still having about 5.0 billion rupees of excess liquidity

The sharp drop in liquidity is indicative of a large external payment being settled with the Central Bank’s Treasuries stock going up to 60.1 billion rupees from 46.7 billion rupees, dealers said.

Unwinding of a swap deal with the monetary authority could also have a similar effect.

A currency comes under pressure from excess domestic liquidity.

Last week the Reserve Bank of India took firm steps to reduce liquidity accommodation to the banking system, raising the bank rate and putting volume limits on a standing facilities, after the rupee hit record lows.