Sri Lanka rupee reaches 130 to the dollar

June 27, 2013 (LBO) – Sri Lanka’s rupee was quoted as weak as 130.75/90 to the US dollar in the spot market Thursday, dealers said. In December the rupee traded at 130.55 levels, according to Bloomberg data.

One week forwards were traded around 130.40/45 dealers said.

The rupee steadily weakened amid excess liquidity in money markets in the past three weeks in the absence of any outright sales of Treasuries by the Central Bank in the month of May.

In June however there have been several outright sales of Treasuries to withdraw liquidity, which analysts say may help the currency going forward.

On July 01 about 35-40 billion rupees in liquidity is expected to be released by a cut in the statutory reserve ratio, which could also put further pressure on the currency, unless followed up by aggressive open market operations are conducted.

The currency weakness comes amid volatility in regional currencies, including the Indian rupee.

Sri Lanka’s rupee has tended to weaken over the longer term, partly due to monetizing debt and also due to inconsistent operational arrangements, analysts have said.

Sri Lanka’s central bank intervenes in forex markets to buy large capital inflows, especially to the state, but has reduced interventions to sell, a practice which analysts have warned tends to push the rupee down and has made it a ‘crawling peg’ historically.