Home / Front Page/ CB warns against dollar hoarding as rupee falls

CB warns against dollar hoarding as rupee falls

Comments / {{hitsCtrl.values.hits}} Views / Thursday, 12 July 2018 00:00


Reuters: 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 rupee has been falling steadily since April and is on course to retest recent historic lows. It could fall as much as 8% 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 4% 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 20 June. It fell 2.6% 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. However, we certainly do not want to take such measures. They are not good for banks, exporters, importers and the economy as a whole,” Coomaraswamy said in his emailed comments.

Exporters, who dominate the island nation’s economy and are benefiting from the currency weakness, are investing their foreign currency earnings in dollar-denominated securities amid fears that the rupee is set to fall further, traders said.

Colombo-based Softlogic Stockbrokers Head of Research Danushka Samarasinghe said the rupee could depreciate between 6% and 8% this year. That would take it to levels of between 163.50 and 167.00 the year end.

At least four currency dealers, who spoke to Reuters on condition of anonymity because they are not authorised to talk to media, said they expect at least 6% fall in the rupee this year.

The Central Bank has intervened in May and June when the rupee faced heavy downward pressure.

A currency dealer in a local bank said most big time exporters, instead of converting dollars, have invested their foreign currency in the dollar-denominated Sri Lanka Development Bonds that offer a 6% yield.

The rupee is also being hurt by foreign outflows from Government securities because of rising US yields, said JB Securities Research Analyst Murtaza Jafferjee.

About $ 185 million, or 9%, of total Government securities held by foreigners has been pulled out since 25 April.

“Most of the exporters will hold on (to dollars) if the trend is to depreciate,” Jafferjee told Reuters.

Share This Article


1. All comments will be moderated by the Daily FT Web Editor.

2. Comments that are abusive, obscene, incendiary, defamatory or irrelevant will not be published.

3. We may remove hyperlinks within comments.

4. Kindly use a genuine email ID and provide your name.

5. Spamming the comments section under different user names may result in being blacklisted.


Today's Columnists

In the desert of Tamil films, actor Sivaji Ganesan was an oasis

Saturday, 22 September 2018

‘Indian Film,’ first published in 1963 and co-authored by former Columbia University Professor Erik Barnouw and his student Dr. Subrahmanyam Krishnaswamy, is considered a seminal study of the evolution and growth of Indian cinema. The book is cit

Imran may turn blind eye to blasphemy law and persecution of Ahmadiyyas

Saturday, 22 September 2018

There are clear signs that Pakistan’s freshly minted Prime Minister, Imran Khan, will make a sincere effort to reduce corruption and maladministration in the domestic sphere. In foreign affairs he is likely to make a brave attempt to mend fences wi

The rate of exchange, capital flight and the Central Bank

Friday, 21 September 2018

The Central Bank (CBSL) exists for the sole purpose of price stability. Its controls on the financial system and monetary policy exist to maintain price stability. As put forth many times by the Governor, the failing of the CBSL to control inflation

Red flag over the Sri Lankan Navy

Friday, 21 September 2018

Shocking story Rusiripala, a former banker in Sri Lanka, who has taken to writing in Daily FT, is perturbed by the red flag I have raised (Daily FT article 18 September) over the shocking charge that our Navy had operated a ransom gang that had abduc

Columnists More