Cabraal says rupee movement no cause for concern

Reuters: The fall in Sri Lanka’s rupee currency is no cause for concern as foreign investors have been changing their positions rather than pulling out of the country’s bond market, Central Bank Governor Ajith Nivard Cabraal said.

The rupee had sunk to a more than six-month low of 129.00/129.10 per dollar on Friday, as foreign investors sold bonds as part of a broader sell-off in emerging markets on fears that loose global monetary conditions were about to end.

The Central Bank intervened in the market, selling dollars to stabilise the rupee and restore calm.

“We haven’t seen foreigners cashing out... we haven’t seen any (rupee) movement that has caused us any concerns,” Cabraal told a Foreign Correspondents’ Association Forum late on Friday.

“We have actually seen some of the banks changing their positions and booking forwards, perhaps, with the conditions that are taking place in the rest of the Asia. They are doing it mainly as a hedge because they believe that there could be a movement in the direction of depreciation.”

The Central Bank’s weekly economic data released late on Friday showed foreign investors have shifted to more liquid treasury bills, exiting from somewhat illiquid government bonds. Foreign investors sold a net Rs. 1.82 billion ($ 14.16 million) worth of T-bonds in the week ended on 12 June, but bought a net Rs. 2.45 billion in T-bills, the data showed. Foreign investors account for 497.71 billion or 13.7% of total outstanding government securities of Rs. 3.62 trillion.

Cabraal said the rise in US Treasury yields will not affect foreign investors in government securities as returns from Sri Lankan Government paper are much higher than in other emerging markets. Sri Lanka faced a balance-of-payments crisis in 2008 after foreign bond holders withdrew over $ 1 billion within a month in the face of the global economic crisis.