Sri Lankan Rupee Foreign Exchange


US dollar inflows to soften depreciation pressure on the Sri Lankan rupee’s exchange rate

Published on January 18, 2012 by   ·   No Comments

Sri Lanka’s central bank on Thursday said it expects US dollar inflows in the next two months to soften depreciation pressure on the Sri Lankan rupee’s exchange rate, which it will still defend despite IMF pressure to stop managing the currency.

The central bank has spent more than $850 million propping up the rupee since President Mahinda Rajapaksa ordered a surprise 3 percent devaluation on Nov. 21.

Since then, dealers say the central bank on average has been selling $25 million a day to hold the rupee at 113.89/90 a dollar.

The IMF last year warned that central bank intervention was threatening the non-borrowed foreign exchange reserve position, and withheld the eighth tranche of a $2.6 billion loan as a result.

Central Bank Governor Ajith Nivard Cabraal told Reuters in an interview that he saw depreciation pressure waning within a “maximum month or two months.”

“We see a large inflow coming in,” Cabraal said. “Ours is a measured intervention, which is going to be on both sides. In three months, (people) will be asking me ‘Why are you buying dollars?’”

The central bank is negotiating a $1 billion long-term loan to finance petroleum imports, and is expecting another $500 million soon from long-term currency swaps, Cabraal said without elaborating.

Sri Lanka is targeting $25 billion in inflows in 2012, a 31 percent increase from the $19 billion in 2011.

Although the $59 billion economy was forecast to have grown by 8 percent last year, Sri Lanka is expected to have recorded a balance-of-payments deficit in 2011.

Foreign exchange reserves fell around 27 percent in the last five months of 2011 to $6 billion, the cost of supporting the rupee while many other Asian peers let their currencies fall.

An IMF team is due in Sri Lanka on Jan. 25 to review Sri Lanka’s performance under the loan program, and sources close to the global lender have said it will not release any more money until the central bank allows more rupee flexibility.

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