Rupee down 3.1% after devaluation

Wednesday, 23 November 2011 01:24 - - {{hitsCtrl.values.hits}}

CB sets rupee at 113.50/90, from 110.00/40
Spends $ 15 m to defend rupee-dealers
Bond investors struggle to exit

Reuters: Sri Lanka’s rupee fell nearly 3.1 per cent on Tuesday as traders tested the lower limit of the trading range set by a State bank in the morning, to implement a three per cent devaluation ordered by the President the day before.

The rupee closed at 113.89/90 rupees a dollar on Tuesday from Monday’s 110.35/40, the level where it froze on Monday.

Central Bank Governor Ajith Nivard Cabraal on Tuesday told Reuters the Government had set the new lower rupee rate via the State-owned Bank of Ceylon, which was quoting 113.50/113.90 at the start of trading.

President Mahinda Rajapaksa, in his capacity as Finance Minister, shocked the market by announcing the devaluation in his Budget speech on Monday, which ground trading to a halt.

Two currency dealers Reuters spoke to said the Central Bank paid at least $ 15 million on Tuesday to defend the currency at the new level amid depreciation pressure as local and foreign investors tried to sell off rupee-denominated Treasury bonds.

“But there were no bids on the buying side on the bonds,” one of the dealers said on condition of anonymity.

Several dealers said some foreign investors tried to sell their bonds, but ran up against a lack of liquidity to cash out the investments and a minimal secondary market of buyers.