Sri Lanka rupee extends gains in early trade

Dec 21, 2012 (LBO) – Sri Lanka’s rupee rose sharply against the US dollar in early trade Friday to 125.60/125.80 up from Thursday’s closing of 127.60/70 rupees amid thin year end trading dealers said. After that the rupee fell rapidly to much as 134 to the US dollar as the Central Bank sterilized interventions made to pay for oil bills and allowed the exchange rate to be more ‘flexible’ and respond.

The rupee was at 110 levels to the US dollar before sterilized foreign exchange sales began.

There have also been inflows to the state, dealers said. But inflows to the state don’t always trigger exchange rate appreciation as the Central Bank buys them creating rupee liquidity.

Interbank money markets were liquid with an excess clearing balance of about 6 billion rupees Thursday but some banks were short and had borrowed 3.0 billion rupees through the central bank’s discount window.

Two days of gains have been the sharpest seen since the currency peg broke under the pressure of sterilized foreign exchange sales earlier in 2012.

The peg broke after the rupee was floated in February falling to about 118 to the US dollar after contradictory exchange and monetary policy ended.