Sri Lanka rupee under steady pressure

Aug 26, 2011 (LBO) – Sri Lanka’s rupee came under steady pressure as the spot dollar rate was held at 110.00 rupees with forex sales by monetary authorities, with interest rate pressure also resisted earlier in the week, dealers said. To repay holders the central bank has to either print money, worsening the balance of payments crisis or the Treasury has to overdraw state banks.

Dealers estimate that on Thursday out of 26 million dollars in spot sales about 80 percent came from a state name that usually acts for the monetary authority.

Excess rupee liquidity in money markets is being rapidly extinguished due to dollar sales by the monetary authority.

So far in August about 30 billion rupees of excess liquidity has been extinguished from money markets pointing to dollar sales of over 250 million.

Last month 416 million dollars were sold to defend the peg.

Analysts say Sri Lanka’s rising expanding credit has created a need for interest rates to increase to restore macro-economic equilibrium.

However on Wednesday out of an offer of 10 billion rupees in government debt only 64 percent was sold to real buyers to keep rates down.