Sri Lanka rupee strengthens to 186.40/50 to US dollar

ECONOMYNEXT – Sri Lanka’s rupee gained to close around 186.40/50 to the US dollars in the spot market on Thursday, dealers said, amid the collapse in domestic demand from Coronavirus curfews and import controls.

The rupee closed around 187.05/15 at close on May 20.

Excess liquidity in money markets dropped sharply to 97.8 billion rupees on May 21 though only a 4 billion rupee term reverse repo facility was maturing.

It is not clear whether a foreign loan repayment was made for liquidity to drop.

The drop in liquidity came despite the Treasuries stock of the central bank going up to 319 billion rupees on May 21 from 307 billion rupees on May 20.

On May 20 the central bank bought 13.1 billion rupees of bonds through outright purchase of bond under a new ‘quantity easing’ facility started during the tenor of Governor Indrajit Coomaraswamy amid public opposition to buying bills from auctions.

Buying bonds allows the central bank to manipulate interest rates further down the yield curve and create pressure on the currency if private credit and state credit demand is strong, critics have said.

Sri Lanka’s rupee came under severe pressure in March and April with a spike in credit spike, and the central bank slammed 1970s style import controls. (Colombo/Mar21/2020-sb)