Sri Lanka rupee opens stronger

Nov 10, 2009 (LBO) – Sri Lanka’s rupee traded stronger against the US dollar moving up to 114.45/50, with a state bank that usually acts for the monetary authority signaling the new rate, dealers said. The rupee moved up to 114.65 against the US dollar from its long-standing peg at 114.80 levels on Monday.

Central Bank Governor Nivard Cabraal said Monday the rupee may move up when the US dollar weakens in international markets.

“We will watch the whole situation a little more carefully to see how it emerges,” he said in an interview Monday.

“And may be it won’t be just a straight line – not just an exact peg that we have – which people have been suggesting should not be also.”

The US dollar has been weakening in international markets sending the price of real commodities up and gold upwards.

The dollar zoomed in late 2008 as the US banking sector which translates Fed policy action to the real economy became risk averse and half the US monetary base ended up as excess reserves, amid high demand for cash and low credit growth. The Central Bank has also kept inflation low with credit growth also being weak despite excess liquidity flowing through the peg due to relatively higher interest rates in Sri Lanka compared to the US and the rest of the world.