Sri Lanka’s rupee weakened to 134.10 to the US dollar after authorities dropped the intervention rate by 10 cents, dealers said yesterday.

There was heavy foreign selling in large cap stocks, brokers said, with the Colombo All Share Index down 153 points in the first three hours of trading.
John Keells Holdings, Commercial Bank, Dialog, among key companies targeted by the UNP led administration with retrospective tax were among the most hurt.

There is no active trading in Sri Lanka’s forex markets but authorities sell dollars for trade backed transactions if a bank cannot get dollars from customers, keeping the exchange rate peg at 134.10 to the US dollar.

Rs. 4.81 billion was injected to money markets yesterday, lower than the Rs.8.7 billion injected on Friday.

The Central Bank’s Treasury bills stock, which is a proxy for money printing rose Rs.87.5 billion from Rs. 84.7 billion a day earlier. Net excess liquidity rose to Rs.41 billion from Rs.30 billion a day earlier.

The rupee has come under pressure from rising credit demand from state and private borrowers and low interest rates, a problem Sri Lanka has suffered ever since the Central Bank was created in 1951.

On Monday August 31, the Central Bank is due to make a monetary policy announcement. Central Bank Governor Arjuna Mahendran was quoted as saying earlier, that rates may be cut after the elections in August. (Economynext)