CB warns against dollar hoarding as rupee falls

(Colombo) REUTERS: Sri Lanka’s Central Bank is concerned about the dollar hoarding and market manipulation that’s exacerbating the rupee’s weakness and has the tools to correct any misalignment in the exchange rate, its governor told Reuters.

The rupee has been falling steadily since April and is on course to retest recent historic lows. It could fall as much as 8 percent for the full year against the dollar in 2018 as exporters hold back on converting their dollar earnings into the local currency, traders and analysts said.

The country’s massive trade deficit has been primarily behind the rupee’s four percent fall so far this year. It was last traded at 159.30 to the dollar, recovering from an all-time low of 161.17 that it hit on June 20. It fell 2.6 percent in 2017.

“We are in the process of collecting export earning data from banks,” Central Bank Governor Indrajit Coomaraswamy told Reuters on the sidelines of an event in Colombo on Monday. In earlier emailed comments, he said “there is concern that exporters have not been converting their proceeds because there has been some reduction in the inflows to the market that does not seem warranted by underlying fundamentals.”

The Central Bank is in the process of assessing if the currency depreciation is a result of a market manipulation and “misaligned with underlying fundamentals”, he said. The Central Bank does not see “any fundamental reasons” for the rupee’s weakness, he said. “If at any point we conclude there is such misalignment, the Central Bank has the tools to address this without depleting reserves. 

Rupee closes steady in dull trade

(Colombo) REUTERS: The Sri Lankan rupee closed steady yesterday in dull trade, as importer dollar demand offset selling of the US currency by exporters, traders said.

The rupee closed flat for a second straight session at 159.25/35 per dollar, after declining for six consecutive sessions. It has declined 3.9 percent so far this year.
“There was not much of trade and we think the rupee will hold at this level for the moment. We haven’t seen much volatility in the last few sessions,” a currency dealer said.

The Central Bank is concerned about the dollar hoarding and market manipulation that’s exacerbating the rupee’s weakness and has the tools to correct any misalignment in the exchange rate, its governor told Reuters.

The Central Bank left its key rates unchanged as expected on Friday, saying a low rates environment and stabilising inflation would support its economy in the face of a fragile currency.

Central Bank Governor Indrajit Coomaraswamy said the depreciation was mainly driven by external factors and that emerging-market currencies were under pressure.
The International Monetary Fund (IMF) said last month that Sri Lanka’s economy remained vulnerable to adverse shocks due to a sizeable public debt and large refinancing needs. Currency dealers said the rupee was weakening gradually after a brief recovery.

Dealers said the downward pressure on emerging market currencies was due to the hike in US rates, trade tensions between China and the United States, and rising oil prices. The spot rupee hit an all-time low of 160.17 per dollar on June 20.

A strengthening dollar since mid-April has increased the credit risk of several emerging markets, including Sri Lanka, due to currency depreciation, ratings agency Moody’s said late last month. Foreign investors sold government securities worth a net Rs.674 million in the week ended July 4, bringing the outflows so far this year to Rs.29.6 billion, the Central Bank data showed.