CB to intervene if rupee moves on speculation

Reuters: The Central Bank will intervene in the foreign exchange markets if its rupee currency moves for any reasons other than global trends, the Bank’s Senior Deputy Governor Nandalal Weerasinghe told Reuters on Friday.

Currency dealers have said the Central Bank had not intervened much to defend the currency, which has dropped 5.6% this year, even after it hit record lows for 13 straight sessions through Thursday.

On Thursday, the Central Bank cut net opening positions (NOP) of commercial banks after the rupee, which had weakened 1.2% last month, hit a record low of 162.65 against the dollar. The currency recovered after the Central Bank’s move.

“If we think it is moving due to several other reasons, rather than a global trend, obviously we will intervene,” Weerasinghe told Reuters in an interview. “We will intervene and we will bring any other measures we think appropriate.”

On Tuesday, the Junior Finance MinisterEran Wickramaratnesaid the Government would leave the level of its rupee to market forces to decide. However, banks have been building up reserves on speculation, Weerasinghe said.



“We have observed banks have been building up their positions and not converting (the dollars). Without any fundamental reasons, there is no reason to build up reserves.”

The Government has not been influencing or intervening in the foreign exchange management of the Central Bank, he added.

“Whether to intervene or not, it is the responsibility of the Central Bank,” he said, adding that both depreciation and level of intervention has been lower in Sri Lanka than some other countries.

He also said there was no sharp decline in exporter conversions as claimed by currency dealers and the market had seen an average daily transaction volume of $ 80 million to $ 120 million.

Weerasinghe said Sri Lanka’s foreign exposure in the government securities was less than 6% of total Treasury bonds and bills.

Foreign investors have sold a net Rs. 46.9 billion ($ 289.6 million) worth of securities so far this year, Central Bank data showed.

Rupee edges down on importer dollar demand

Reuters: The rupee ended marginally weaker on Friday as importer dollar demand surpassed selling of the greenback by banks a day after the Central Bank cut net open positions of commercial banks to increase dollar liquidity, dealers said.

The local currency hit a fresh low of 162.65 per dollar on Thursday, hurt by stronger demand for the dollar from importers amid weakness in regional currencies, before the Central Bank cut the net open positions (NOP) of commercial banks forcing banks to sell dollars.

Central Bank Senior Deputy Governor Nandalal Weerasinghe on Friday said the monetary authority had observed commercial banks building up their positions without any fundamental reasons, which led to cut in NOP.

The currency, which hit a low of 162.05, was volatile on Friday and ended at 161.90/162.10, compared with Thursday’s close of 161.40/80. 

“Banks did not want to take risk after the Central Bank cut the NOP. The market was volatile as nobody wanted to take risk. They covered all the bills from the market instead of from their own reserves,” said a dealer, who requested anonymity. 

“We did not see exporters in the market. We saw some remittances but importer demand was there.” 

Junior Finance Minister Eran Wickramaratne on Tuesday told Reuters that the Government will leave the rupee for market forces to decide. 

The currency has weakened 1.2% last month and it has dropped 0.34% so far this month and 5.6% so far this year. The rupee will be under depreciation pressure with the year-end seasonal importer dollar demand, dealers added. 

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

Foreign investors bought government securities worth a net Rs. 578.3 million ($ 3.58 million) in the week ended 29 August, marking the first week of net buying since April. However, they have net sold Rs. 46.9 billion worth of securities so far this year, Central Bank data showed.