Sri Lanka rupee slides to 111.00 against green back

Dec 11, 2008 (LBO) – The Sri Lanka rupee traded at 111.00 rupees to the dollar Thursday with the market two way quote now at 111.00/30, with no official intervention in early trade, dealers said. “We have allowed a gradual depreciation of the rupee,” Central Bank chief economist Nandalal Weerasinghe said.
“Other currencies have also depreciated and we are also depreciating to improve competitiveness of our exporters.”

The rupee fell to 110.65 yesterday, from 110.30 to the US dollar a day earlier.

A week ago the Central Bank was defending a rate of 110.00 rupees to the dollar.

Sri Lanka rupee had been pressured by massive central bank liquidity injections since September and two reserve ratio cuts, which have injected around 130 billion rupees into the market and a loss of an equivalent value of foreign reserves.

The liquidity shortages emerged as the central bank intervened to keep the rupee at 108.00 and then at 110.00 rupees to the green back from mid-September.

To break the cycle, the central bank has to get out of the market and ‘float’ the currency. It is not yet clear whether a float is underway or whether the central bank will intervene again, dealers said.