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The Sri Lankan rupee (LKR) edged up after the announcement of the International Monetary Fund (IMF) extending the eighth tranche of loan, as part of the $2.6-billion stand-by arrangement, amounting to $427 million.
The rupee touched 126 versus the dollar on Tuesday, one banker said. On Monday, it had closed just over LKR 128. This is the lowest that the rupee has touched in recent weeks.
Since February 9, when the Sri Lankan Central Bank stopped intervening to prop up the rupee, the LKR has been losing ground steadily and breached the 130 mark — a level it had not touched even at the height of the war with the Tamil Tigers in early-2009.
IMF completed the seventh review of Sri Lanka's stand-by arrangement and the eighth tranche to the value of SDR 275.6 million (approximately $427 million) was disbursed April 2, a Central Bank release said. The IMF has waived the end-December target set for net foreign exchange reserves and reserve money targets.
Forex reserves
It appears that the IMF had taken into consideration the across-the-board price hikes, the Central Bank's decision not to intervene in the currency market, and the steps it had taken to curb run-away credit growth.
“With this disbursement, a total of SDR 1,378 million (approximately $2,130 million) has been received thus far by Sri Lanka on account of the SBA facility that was approved in July 2009. These disbursements as well as other inflows on account of workers' remittances, inflows to the government to finance various infrastructure development projects and inflows to the private sector have helped raise the country's foreign reserves to a comfortable level,” it added.
With this, the gross official reserves (without ACU balances) now stand at $6.1 billion, which is equivalent to 3.6 months of imports.
The IMF loan comes at a steep price. Since the eighth tranche will mean Sri Lanka exceeds its total outstanding value of 300 per cent of the current quota, it comes at a higher rate of interest. This amounts to the equivalent to SDR 138 million. Sri Lanka, however, has no choice but to opt for the loan, given its precarious foreign exchange reserves position.
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