CB allows fall in spot rupee after 2 months; forwards steady

Friday, 1 May 2015 00:01 - - {{hitsCtrl.values.hits}}

Reuters: Sri Lanka’s Central Bank allowed a fall in the spot rupee on Thursday for the first time in two months, but defended it amid importer dollar demand ahead of a long holiday, while dealers expect the currency to remain under pressure from lower interest rates. The Central Bank allowed a 10-cent fall in the spot rupee to 133.00 per dollar after holding it at 132.90 since February, when it set a level beyond which it would not allow the currency to fall. Dealers, however, said the spot rupee did not trade as the central bank did not allow trades below 133.00 through moral suasion. Actively traded two-month forwards ended at 135.36/50 per dollar, while three days above one-month forwards were steady at 134.90/135.00 as the central bank prevented it being traded below 134.90. “There are no inflows as nobody is converting due to the easy access of cheap funds in a low interest rate regime. The depreciation pressure is there, but moral suasion is preventing it,” said a currency dealer asking not to be named. Dealers said the Central Bank has kept the spot rupee and all forwards up to one month steady through moral suasion. Central Bank officials were not available for comment. The exchange rate is under pressure after the central bank slashed its key monetary policy rates on 15 April with market interest rates on a falling trend since then. Yields on treasury bills fell 3 to 11 basis points (bps) on Monday at a weekly auction, extending their decline to 41-51 bps since the rate cut. Two-week and one-week forwards ended steady at 133.90/134.00 and 133.60/70 per dollar, respectively.

April inflation steady at record low of 0.1%

Inflation, as measured by the change in the Colombo Consumers’ Price Index (CCPI) (2006/07=100), which is computed by the Department of Census and Statistics, remained unchanged at 0.1% as recorded in the previous month, on an year-on-year basis, in April 2015. Annual average inflation declined from 2.5% in March 2015 to 2.1% in April 2015, according to the Central Bank. CCPI increased by 0.2% from March to April 2015. The increase in prices of items in the Non-food category during the month contributed mainly towards this increase. Within the Non-food category, prices in the subcategories of clothing and footwear; housing, water, electricity, gas and other fuels; furnishing, household equipment and routine household maintenance; health; and miscellaneous goods and services recorded increases. Prices in the subgroups of recreation and culture; transport; rducation; and communication remained unchanged during the month. However, moderation of food prices during the month eased inflationary pressure in April 2015. Prices of many vegetable varieties, rice, some varieties of fresh fish and dried fish, green chilies, red onions and coconuts declined in April 2015, compared to the prices prevailed in March 2015. Nevertheless, prices of chicken, beef, coconut oil, potatoes, limes, big onions and some varieties of fruits recorded marginal increases during the month. Core inflation, which reflects the underlying inflation in the economy, increased to 2.4% in April 2015, from 1.4% in March 2015 on an year-on-year basis. Annual average core inflation declined to 2.9% in April 2015, from 3.0% in March 2015.