$ 1 b to defend rupee in January; CB Chief says reserves stabilising, ample dollar inflows
Friday, 27 February 2015 00:47
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Reuters: Foreign currency reserves are stabilising after authorities spent over $1 billion in January to defend the rupee currency, Central Bank Governor Arjuna Mahendran said on Thursday.
Foreign currency reserves fell 13.2% to $6.28 billion in January alone as the monetary authority intervened in foreign exchange markets to stem the decline of the rupee, though the currency still fell over 1% last month.
“There is no pressure on the reserves. January was a tough month and $ 1 billion went down. Now there are enough inflows to cover our repayments. So reserves are stable,” Mahendran told Reuters on the sidelines of a conference on Colombo.
“At the moment there is no shortage of dollars. There are ample dollars coming in.”
Sri Lanka retired a $500 million sovereign bond and made several other repayments including to the International Monetary Fund in January.
The Central Bank has been defending the rupee contrary to the market view of the new Government, which came to power after a 8 January presidential poll and pledged to allow more exchange rate flexibility.
Mahendran, however, said the rupee is not fixed and the central bank will adjust it depending on currency flows.
“It’s a small illiquid market, so we can’t let it float. If you let it float, it will shoot up and down and become very volatile. But if we see a desperate shortage of dollars, we will move it. That’s what happened in January. When the reserves were falling it went down by 1.2%.”
The rupee lost 1.4% of its value against the dollar between the start of the year and 20 February and dealers say the currency remains under downward pressure on persistent demand from importers for dollars.
The Central Bank has been defending the spot currency at 132.90 since 19 February after keeping it at 132.80 from 6 February.
The Central Bank has also increased the yield on Sri Lanka’s 91-day Treasury bills by 24 basis points this year while keeping its key policy rate at a record low, which currency dealers see as a move to ease pressure on the rupee.
