The rupee yesterday gained at its best ever pace in recent months, a development which analysts and markets linked to remarks made by Treasury Secretary Dr. P.B. Jayasundera to media on Monday.
The currency traded at Rs. 126 (up by over 3%) in the morning before closing at Rs. 127.80/128.70 a dollar, firmer as opposed to Monday’s closing of Rs. 130/130.40.
Sources said exporters came to the market selling dollars whilst the forex market also saw a rebound in confidence after the Treasury Secretary at a media briefing stressed the US Dollar exchange rate would stabilise to below Rs. 125 level on improving fundamentals. He also warned of intervention if the currency dropped beyond “tolerable levels” largely owing to speculation.
“The rupee is firmer on exporter conversions and the market sentiment is that the rupee will strengthen further after the Treasury Secretary’s comments,” Reuters said, quoting an unnamed currency dealer.
“We expect stability in markets in May,” Dr. Jayasundera said at the media briefing, suggesting that markets would factor in moderation in imports and credit expansion when latest data was available. “No one can go on speculating regardless of limits or fundamentals. Sanity will prevail,” he added.
He expressed confidence that recent measures would stabilise markets as well as help boost exports, the import replacement industries as well as energy conservation.
The Treasury Secretary also said people (markets and private sector) must have greater trust in recent policy measures as well as in those who took decisions. “When the economy was growing at 8% if people believed us and our actions, why cannot the very people do the same today (on our actions)?” Dr. Jayasundera queried at the media conference.
Reuters reported yesterday that to ease a shortage of dollars, the Central Bank also said it would allow part of a $ 500 million bond raised by the State-owned Bank of Ceylon to be sold in the market and would use the rest to build up its reserves, which were heavily depleted by past attempts to shore up the falling rupee.
The currency hit an all-time low of 133.50 on 25 April, but has since rebounded by close to six per cent.
Still, it is down 9.3 per cent since the Central Bank stopped intervening to defend a specific price level on 9 February. It has depreciated more than 12 per cent since 19 November, when the Government allowed a three per cent devaluation.