Rupee touches record low

COLOMBO (Reuters) - The Sri Lankan rupee hit a fresh low against the dollar yesterday, but sources said the market expects the currency to recover, tracking gains in other emerging market currencies.

Hard-hit emerging market currencies were 0.43 percent stronger, helped by a weaker greenback. The U.S. dollar index fell as hopes grew of concessions by Canada that would resolve disputes over reworking the North American Free Trade Agreement. The Sri Lankan rupee touched a fresh low of 162.92 per dollar, surpassing its previous low of 162.70 in the previous session.

The currency ended at 162.80/90 per dollar, weaker from Wednesday’s close of 162.35/45.

Sri Lanka’s Finance Ministry would not intervene in exchange rate management, junior finance minister Eran Wickremaratne said yesterday at an economic forum.
“We believe in an independent Central Bank. We have given space to the Central Bank unlike in the past and it (exchange rate management) is independently done by the Central Bank,” he said.

“I understand that the central bank would intervene as and when necessary to curb excess volatility in the exchange rate. The Central Bank will in fact punish speculators.”

Sri Lanka’s Central Bank cut the net open positions of the banks last Thursday to increase dollar liquidity, forcing commercial banks to sell dollars to ease the pressure on the currency.

Currency dealers have declined to speak to the media since Tuesday, citing instructions from the Central Bank.

Central Bank Governor Indrajit Coomaraswamy said late on Tuesday he was unaware of any such move.

The Sri Lankan rupee has weakened 0.8 percent so far this month after a 1.2 percent drop last month, and has declined 6.1 percent so far this year. It will be under pressure due to year-end seasonal dollar demand from importers, dealers have said.

The currency has also been hurt by weakness in the Indian rupee. India is Sri Lanka’s biggest trading partner and the Indian rupee, which also hit a record low on Wednesday, has become Asia’s worst performing currency this year.

Foreign investors sold government securities worth a net Rs.6.44 billion (US$39.6 million) in the week ended Sept. 5, extending the net outflow so far this year to Rs.53.3 billion worth of securities, Central Bank data showed.