Rupee hits record low on lack of dollar liquidity

Reuters: The Sri Lankan rupee hit a record low on Monday due to importer dollar demand, while expectations of a further fall in the local currency discouraged exporters from converting the greenback, dealers said.

The rupee fell 0.1 % to an all-time low of 144.30 in intraday trade, surpassing its previous trough of 144.25.

It ended at 144.30/40 per dollar, from Friday’s close of144.15/25.

“There’s no liquidity in the market as exporters are very reluctant to sell (dollars), expecting further depreciation,” said a currency dealer, requesting not to be named.

The Sri Lankan rupee has been hovering around a record low in the past few weeks as speculations were rife that the currency would weaken further. The Central Bank’s decision to tighten liquidity in the money market with effect from 16 January is yet to ease pressure on the rupee.

The rupee has fallen 6.6 % since the Central Bank allowed free float of the currency on 4 September 2015  and is expected to weaken further in 2016 due to lower reserves and higher imports, currency dealers explain. It fell 9 % last year.

The island nation suffered a net outflow of Rs. 153.4 billion from foreign holdings in government securities in 2015, the latest data showed.

Commercial banks parked Rs. 112.255 billion ($781.72 million) of surplus liquidity on Monday using the Central Bank’s deposit facility at 6 %, while they borrowed 112 million using the Central Bank’s lending facility at 7.5 % according to official data.

The Central Bank absorbed Rs. 19 billion on Monday through term repo auction.