October 12, 2006 (LBO) – The Sri Lankan rupee fell to a lifetime low Friday, depreciating just over 3-percent in value against the U.S. dollar, but the Central Bank says the currency has gained slightly against other key countries. The rupee softened to 105.95 to the dollar from Thursdayâ€™s close of 105.50 as importer bought dollars to settle trade bills, dealers said.
There was heavy demand from importers, as the market was anticipating the government to buy dollars in the days ahead to settle costly oil import bills.
The currency last hit a lifetime low of 105.47 on Dec.17, 2004, before the island receive an influx of aid dollars that helped lift the currency, following the Asian tsunami.
From end Sept to October 12, the Central Bank said the local currency has dipped 1.22 percent against the dollar, while gaining 0.33 percent against the Japanese Yen and 0.14 percent against the Euro.
Traders expect the rupee to breach the psychological 106 level next week, as the government buys dollars to settle oil import bills.
The bank said the islandâ€™s exports still remain competitive with shipments in August earning a record 734 million dollars.
At the sametime, the costs of imports rose 26.2 percent to 994 million dollars, as the island spent more to secure all its oil needs from Iran, Saudi Arabia and Malaysia.
During the last few weeks, the Central Bank has artificially propped the currency by indirectly selling dollars in the market through state and foreign banks.
Following its record lows today, the bank said it wont intervene in the currency markets to defend the rupee. “The Central Bank has allowed the market forces to determine the exchange rate since 2001, and has been intervening only to mitigate excessive volatility in the foreign exchange market,” the statement added.