Following forex!

• CB asks banks overnight for their forex commitments for Thursday and Friday; steps up bank visits
• Convenes meeting with treasury heads of banks; rupee crisis figures in monthly CB-bank CEOs meeting as well
• Dealers say no room for speculation given the very narrow net open positions; new rules apart from lack of dollars could be adding to upward pressure on exchange rate
• Exporters aren’t readily converting dollars for fear of losing out given volatility

Given the fact that the US Dollar is on the ‘Most Wanted’ list in contemporary Sri Lanka, the Central Bank as well as the banking sector have been literally working overnight to manage and respond to what the market described as a ‘crisis’ situation.

Catching the falling rupee?

With the rupee sinking to its lowest value this week, the most-needed currency is the US Dollar. Though some may shun the rupee, it was not so at yesterday’s launch of People’s Merchant Plc as a licensed finance company under the Finance Business Act. Here Chandra Wickramasinghe of tourism industry-fame makes a large rupee deposit with Chief Guest Economic Development Minister Basil Rajapaksa, who accepts it with a wide smile – although he may be wishing it was a plate full of dollars! See story on Page 15 – Pic by Chaminda Hittatiya

Late Wednesday evening commercial banks were told to disclose by the following morning their commitments/requirements for forex for Thursday and Friday. This saw banks working overnight to get a rough estimate, given the volatile market. During the day Central Bank officials also visited several banks to get a hands-on assessment.

Yesterday morning treasury heads of commercial banks were summoned for a meeting, whilst the rupee crisis also figured in the monthly Central Bank-bank CEOs meeting last afternoon.

Analysts speculated that the extraordinary action of wanting information overnight could be to obtain a clearer picture of the next two days’ outlay ahead of the impending big oil bill payments as well as to have information before hand to detect any possible speculation or manipulation.

The rupee sank to an all-time low of Rs. 133.50 to a US Dollar on Wednesday, whilst sharp volatility on Tuesday as well as Wednesday sparked allegations of manipulation or speculation. This charge markets have dismissed, saying volatility was owing to supply and demand dynamics.

Yesterday the rupee firmed up by 0.8% to 130.50/131.00 against the dollar from Wednesday’s close of 131.65/132.00.

Banking sources told the Daily FT that the meeting between the CB and treasury heads was useful to exchange views as well as clarify intent. In response to allegations of speculation, banks had explained that the very narrow net open positions leave little or no room for speculation. Another view was that though everyone would like exporters to convert their dollars, in practice it was contentious since exporters too were not keen to lose out.

The general perception that new checks imposed by the Central Bank were part of managing the forex shortage were indeed adding to market speculation as well as causing upward pressure on the rates had come up at the meeting as well, the Daily FT learns.

Privately, bankers have been recommending the idea of reinstating original net open positions as well as allowing longer tenure forward contracts for exporters as opposed to the newly-set limit of 90 days. These two moves, it was pointed out, would take away unnecessary uncertainty and speculation in addition to boosting confidence on the back of the Government’s position that higher inflows are indeed expected or coming into the market.