Sri Lanka rupee weakens in intra-day trade

Apr 12, 2012 (LBO) – Sri Lanka’s rupee dipped close to 130 to the US dollar after opening around 127.80/128.20 in the spot market, amid buying from foreign banks, dealers said. . The rupee was quoted as low as 129.50/130.00 in late morning trade but gained later with demand falling off, dealers said.

Sri Lanka raised interest rates by 75 basis points last Thursday but monetary conditions have been loose with excess liquidity in markets coming from debt monetization.

The Central Bank’s Treasury bill stock which fell amid foreign reserve collections in the last two weeks of March had again started to climb in April indicating that foreign reserves were falling again and forex sales are being sterilized.

Analysts have urged the Central Bank not to engage in sterilized sales of foreign currency or to intervene in Treasury bill auctions and print money, which adds rupee reserves to banks promoting credit and demand and currency weakness.