Dec 05, 2007 (LBO) – Sri Lanka rupee rose sharply against the greenback in spot trade Wednesday on the back of foreign purchases of rupee bonds, dealers said. The rupee hit an intra-day high of 108.70/80 against the greenback in late afternoon trading until state names which usually represent the monetary authority started to buy into the US currency and drove the rupee down to 109.20 levels.
The spot dollar opened at 110.20/30 rupees Wednesday.
Analysts say Sri Lanka’s forex markets are not used to volatility as the monetary authority had tended to play a market-making role. Forex dealers are also not allowed to have significant open positions.
Last week Sri Lanka lifted a limit on foreign holdings of government bonds allowing foreign investors to buy almost 500 million dollars worth rupee bonds.
Traders say bonds maturing in January 2009 were sold this week to foreign investors.
With exporters booking forward, premiums were also moderating.
Sri Lanka’s monetary policy has tightened over the last few weeks as Central Bank countered rocketing inflation which is hovering around 20 percent.