Sri Lanka rupee held below Rs127.00 to US dollar

Apr 24, 2013 (LBO) – Sri Lanka’s rupee steadied at slightly below 127.00 rupees to the US dollar in the spot market helped by selling from a state bank that usually acts for the monetary authority, dealers said. The spot US dollar was quoted around 126.90/127.00 when a state name entered the market with a quote of 126.60/90 driving the spot down to 126.75 levels dealers said. The spot was later quoted around 126.85 levels.

The rupee had been sliding from a little over 125 to the US dollar since the end of a traditional festival period towards 127 with no intervention by the Central Bank.

Late April and early March also see dollar demand going up as large volumes of money is usually printed in April to pay double salaries for state workers created demand after the New Year period.

This year capital inflows sold to the Central Bank, also added rupee liquidity in to the banking system, which eventually generates import demand unless they are sterilized by selling down the Central Bank’s Treasury bill stock.

The Central Bank had been gradually conducting outright sales of Treasuries auction, which would eventually choke outflows of dollars compared to imports, again strengthening the currency.

Analysts had said the Central Bank should intervene through unsterilized dollar sales to mop up liquidity and stabilize the currency at 125.00 to the US dollar or stronger instead of waiting for the exchange rate to depreciate to 127.00.

Dealers had expected the rupee to be held at 127.00
when it started to weaken from the usual post festival demand.

A central bank can intervene in forex markets with no danger of triggering a balance of payments crisis until excess liquidity in money markets disappear.

Update II