Rupee edges up; IMF cautions on forex policy

Thursday, 31 July 2014 00:19 - - {{hitsCtrl.values.hits}}

Reuters: The rupee ended slightly firmer on Wednesday as inward remittances and exporter dollar sales outpaced importer demand for the greenback, but dollar-buying by two State banks prevented sharp gains in the local currency, dealers said. The rupee ended at 130.21/22 per dollar, compared with Monday’s close of 130.22/24. Both the stock and foreign exchange markets were closed on Tuesday for the Eid festival. “There are exporter conversions and remittances but the State banks are buying at 130.21,” said a currency dealer. Usually the Central Bank intervenes through the two State banks to direct the market to smoothen volatility. But dealers said it was not clear if the State bank buying was on behalf of the Central Bank. The International Monetary Fund on Wednesday urged Sri Lanka to limit its intervention in the foreign exchange market. The IMF said the Central Bank’s intervention in the foreign exchange market may create a perception that the rupee was implicitly fixed and could lead market participants and firms to hold un-hedged foreign exchange risk on their balance sheets. Finance Secretary Dr. P.B. Jayasundera said last week that Sri Lanka was building up its foreign exchange reserves while keeping its currency stable as the island nation sees more dollar inflows. The Central Bank has absorbed more than $750 million so far this year, which Jayasundera attributed to a rise in inflows from exports, tourism and remittances. Dealers had been expecting the rupee to appreciate due to weak growth in imports and private sector credit, despite multi-year low interest rates. Private sector credit growth hit a more-than-4-1/2-year low of 2.2% in May on year, compared with 3.3% a month earlier. Imports fell 17.6% on year in May to $1.28 billion.

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