Continued pressure on rupee despite over US$ 1.2bn inflow, a strange affair: Cabraal

The government said the depreciation of the rupee while there has been a massive injection of US dollars into the country is “strange” and attributed it to “some error” that needs to be looked into.

State Minister of Finance, Capital Markets, and State Enterprise Reforms Ajith Nivard Cabraal said he is puzzled with the outcome of the rupee as ideally it should have appreciated with the injection of US dollars into the country’s foreign reserves. “It is very strange that the rupee could have depreciated so perhaps there has been some error, but I’m not sure what it is yet,” Cabraal said during a TV interview.

“I’m surprised that the rupee has depreciated after so many weeks of all these new inflows have taken place to the Central Bank. It seems strange, it should not have happened,” he added.

The rupee weakened to the highest-ever rate of Rs.204.80 against the dollar this week, despite inflows to the tune of US$ 1.2 billion that were received by the Central Bank of Sri Lanka. Even though the official rate is around Rs.203-204, banks are selling dollars to importers between Rs.220 and Rs.225.

The Central Bank this week received US$ 787 million under International Monetary Fund’s (IMF) Special Drawing Rights (SDR) allocation, US$ 150 million from Bangladesh Bank, and US$ 300 million from China Development Bank in the last week of August.

Also, the Central Bank had intervened by infusing US$ 200 million into the forex market to ensure that the containers piled up at the port be cleared. 

Cabraal reiterated that despite the measures, the deprecation of the rupee was unexpected and strange.
From 1 January to 27 August 2021, the rupee has depreciated by 6.8 percent against the US dollar.
The State Minister said that he government would look into the issue in due course and find out the possible reasons for the dip.

“Let us examine the circumstances to understand more fully in the next couple of days, as to what has happened because it is the reverse that should have occurred,” he said.