Confusion reigned in forex markets and the private sector yesterday over the fate and trading of the currency after the Central Bank told bankers the new regime is one of “free float” whilst there was hardly any 

availability.

During a meeting with bank CEOs, the CBSL Governor Nivard Cabraal had said it is a “free float” with regard to the currency and banks won’t be penalised in the event the rate goes beyond the Rs. 230 cap indicated on Tuesday. Following the meeting forex dealers confirmed that the rupee was quoted a wide range between Rs. 240 and Rs. 250 though there were no transactions.

The free float was widely recommended by economists, private sector and certain sections of the Opposition but CBSL remained adamant on its belief that “home grown” solutions will resolve the forex crisis.

First signs of a lost battle became evident when CBSL allowed flexibility in the exchange rate, revising upwards the cap to Rs. 230 per dollar from Rs. 203 previously.

Post flexibility there were no significant trades within the forex market partly due to the confusion and uncertainty.

Bankers expect some degree of trading today though some were sceptical.

Adding to the confusion, the CBSL didn’t issue a formal statement about the “free float” regime.  Some described it as an “orderly free float” implying the CBSL expects the baking sector to act responsibly.

Most recommended a free float of the exchange rate in order for the market to determine the realistic level. 

In the black market the dollar was being traded at a high as Rs. 280, according to some sources. Post 15% depreciation announced Tuesday, the private sector feared the black market rate to soar to Rs. 300 per dollar, a level yet to be reported. 

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