CB intervention pulls rupee back from record low

Reuters: The rupee hit a record low for an eighth straight session on Friday, but closed the session firmer following intervention by the Central Bank, market sources said.

The Central Bank will intervene aggressively to curb excess volatility in the exchange rate, Senior Deputy Governor Nandalal Weerasinghe told Reuters.

“We will not tolerate excess volatility that we have seen in the market during the last couple of days. We will intervene aggressively,” he said.

The rupee fell to an all-time low of 169.00 per dollar before closing at 168.50/70, compared with Thursday’s close of 168.65/169.00. The previous record low was 168.70 per dollar hit on Thursday.

Exporters expect the rupee to be under pressure due to continued importer dollar demand and less exporter dollar sales. The rupee has weakened 4.5% so far this month after a 1.2% drop last month, and has declined 9.9% so far this year.

The dollar weakened against most of its rivals on Friday, barring the British currency, as stronger equity markets and rising bond yields fuelled a rush to buy riskier assets.

The dollar index, which tracks the dollar against a basket of six major rivals, dipped 0.18% to 94.371. The dollar was 0.04% lower against the yen at 112.25, while the euro was 0.26% stronger against the greenback at $ 1.1700.

An illiquid market for dollars, dollar buying by foreign banks to facilitate bond outflows and importer demand weighed on the currency, said the sources.

Since last week, currency dealers have been refusing to speak to the media, citing instructions from the Central Bank. However, Central Bank Governor Indrajit Coomaraswamy said that he was unaware of any such move.

The rupee will be under pressure due to year-end seasonal dollar demand from importers, dealers have said earlier.

The currency has also been hurt by recent weakness in the Indian rupee. India is Sri Lanka’s biggest trading partner and the Indian rupee, which hit a record low on Tuesday, is Asia’s worst performing currency this year.

Foreign investors sold government securities worth a net Rs. 8.8 billion ($ 52.19 million) in the week ended 19 September, its highest weekly outflow in many months. Sri Lanka has suffered a net outflow of Rs. 63.7 billion in securities so far this year, Central Bank data showed.

Govt. expenditure to rise 10% in 2019

Reuters: Sri Lanka plans to increase its Government expenditure by 10.1% in 2019 to Rs. 4.38 trillion ($25.98 billion), a Finance Ministry document showed on Thursday.

Finance Minister Mangala Samaraweera has also sought Cabinet approval for Rs. 1.9 trillion borrowing next year, up 3% from its estimate for this year, Government data showed.

The Government must repay a record $4.22 billion next year including $3.26 billion principal repayment, Finance Ministry data showed.

The Government, however, has not revised its medium-term budget deficit target of 3.5% of the Gross Domestic Product in 2020. Samaraweera will present the 2019 Budget in the second week of November, Finance Ministry officials say. The International Monetary Fund in June said Sri Lanka’s economy remains vulnerable to adverse shocks because of sizable public debt and large refinancing needs.