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Foreign currency inflows are expected to increase in the next few weeks, the Central Bank of Sri Lanka said on Wednesday, in a bid to induce confidence to the market. The Sri Lankan Rupee (LKR) has lost more than 10 per cent since February when the Bank stopped intervening in the forex market to prop up the currency.
Falls further
On Wednesday, the LKR opened at 127.97 (buying rate) while the selling rate remained at 130-plus levels (131.93), the Bank said. It edged down by the close of the day, closing at 130.25/130.25/130.50 a dollar, weaker than Tuesday's close of 129.90/130.00.
It hit a record low on Friday and then a further low of 131.60 on Monday. Dealers and large importers attributed the fall to the Bank's decision to hold on to dollars available as a result of two stake sales. “If those dollars had come into the market, then the situation would have been different,” one dealer said.
One big importer, who had approached the markets for dollars on Tuesday, said he had been requested to look elsewhere. “If I had pushed for it, then the rupee would have dived further,” he said.
Meets with banks
The Central Bank had a meeting with representatives of commercial banks, one source following the development said, adding that the Central Bank wanted them to act on maintaining the rupee. Net inflows to the Colombo Stock Exchange in the year-to-date had totalled $164 million, the Central Bank said on Wednesday.
“There were inflows in respect of investments in several commercial banks, amounting to about $127 million during this week… Net investments of $385 million in Treasury Bills and Bonds were made by foreign investors so far in 2012.
“A significant part of above inflows was absorbed by the Central Bank, thereby adding to the gross official reserves of the country. Further foreign currency inflows are expected in the next few weeks,” it said.
The Bank claimed that “there are clear signs of deceleration in private sector credit growth and import demand” further to its advise to curtail credit growth.
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