Rupee sinks to record low

Wednesday, 25 April 2012 01:19 - - {{hitsCtrl.values.hits}}

CB warns against speculation; says dip to Rs. 132.20 unwarranted

Market expects further depreciation

Reuters: Sri Lanka’s rupee fell to a record low of 132.20 against the dollar on Tuesday as importers bought the US currency on expectations of further weakening after the Central Bank decided to stop supplying dollars to meet oil bills from May.

However, the Central Bank told Reuters that the depreciation was unwarranted as importer dollar demand has dropped significantly since the Central Bank took policy measures to curb imports in February.

The rupee ended at 132.00/20 against the dollar, surpassing its previous record low of 131.60 set on 19 March, and weaker than Monday’s close of 131.40/60. The lowest intraday trade was done at 132.20, dealers said.

“Exporters are holding on till the next level of 135. We need aggressive intervention or a raise in interest rates to curb further depreciation by making rupee borrowing expensive,” said a currency dealer asking not to be named.

Another dealer said importers were trying to buy dollars before it falls further once the oil bills come to the market and exporters held their dollars due to the uncertainty.

Central Bank Governor Ajith Nivard Cabraal warned on Tuesday against speculating on the rupee.

“If the market wants to believe their own stories and expectations after we have given some clear guidance, there is nothing we can do other than to caution them that some of these speculators will get badly hurt,” Cabraal told Reuters via a text message.

Currency dealers said State-run Bank of Ceylon, through which the Central Bank usually directs the market, intervened and sold dollars up to 131.30 rupees.

However, Bank of Ceylon said the dollar selling was a positioning move and not Central Bank intervention.

On Friday, Cabraal had said there was no need to intervene in the market, despite heavy depreciation pressure on the rupee, as the country would see $ 574 million of inflows within a month.

The Central Bank, which is building up its depleted reserves, has said it may stop supplying dollars to pay for oil imports from May, its latest move to allow more rupee flexibility after it refrained from intervening in foreign exchange markets in February.

The currency has depreciated 13.5 per cent since the Central Bank stopped intervening to defend a specific price on 9 February and 16.6 per cent from 21 November, when the Government allowed a three per cent devaluation.

Sri Lanka’s stock market fell for a third straight session in thin trade with a 0.25 per cent, or 13.53 points, fall to 5,441.53 amid uncertainty over the rupee’s depreciation, rising interest rates, slowing economic growth and corporate earnings.

The day’s turnover was Rs. 288 million ($ 2.19 million), well below this year’s daily average of 1.2 billion rupees. The market, however, saw a foreign inflow of 52.3 million rupees, extending the net foreign buying to 21.4 billion rupees in 2012.

The Colombo Bourse is one of the worst performing Asian markets this year, losing 10.4 per cent.

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