Central Bank says will intervene if rupee moves on speculation

(Colombo) REUTERS: Sri Lanka’s Central Bank will intervene in the foreign exchange markets if its rupee currency moves for any reasons other than global trends, Nandalal Weerasinghe, the bank’s Senior Deputy Governor, told Reuters on Friday.

Currency dealers have said the Central Bank had not intervened much to defend the currency, which has dropped 5.6 percent this year, even after it hit record lows for 13 straight sessions through Thursday.

On Thursday, the Central Bank cut Net Opening Positions (NOP) of commercial banks after the rupee, which had weakened 1.2 percent last month, hit a record low of 162.65 against the dollar. The currency recovered after the Central Bank’s move. “If we think it is moving due to several other reasons, rather than a global trend, obviously we will intervene,” Weerasinghe told Reuters in an interview. “We will intervene and we will bring any other measures we think appropriate.”
On Tuesday, the State Finance Minister said the government would leave the level of its rupee to market forces to decide.

Banks have been building up reserves on speculation, however, Weerasinghe said.

“We have observed banks have been building up their positions and not converting (the dollars). Without any fundamental reasons, there is no reason to build up reserves.”

The government has not been “influencing or intervening” in the foreign exchange management of the Central Bank, he added.

“Whether to intervene or not, it is the responsibility of the Central Bank,” he said, adding that both depreciation and level of intervention has been lower in Sri Lanka than some other countries.

He also said there was no sharp decline in exporter conversions as claimed by currency dealers and the market had seen an average daily transaction volume of US $80 million to US $120 million.

Weerasinghe said Sri Lanka’s foreign exposure in the government securities was less than 6 percent of total treasury bonds and bills.

Foreign investors have sold a net Rs.46.9 billion (US $289.6 million) worth of securities so far this year, the Central Bank data showed.