Dollar drops to Rs 365

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The benchmark market ‘spot’ in interbank foreign exchange (FX) trading sharply strengthened by between Rs 25-30 (6.94-7.59 per cent) to close Friday (13.5,22.) at Rs 360/365 to the US dollar in two-way quotes, market sources told Ceylon Today.

On the previous day, Thursday, the ‘spot’ had closed stronger at Rs 385/395 to the dollar in two-way quotes.

Friday’s strengthening of the ‘spot’ was due to Central Bank of Sri Lanka (CBSL) Governor Nandalal Weerasinghe issuing a circular to the CEOs of all banks on Thursday, the day UNP Leader Ranil Wickremesinghe was appointed as Premier, requesting that the ‘spot’ be allowed to trade within a band of Rs 360 +/- Rs 2.60.

Meanwhile, Friday’s strengthening of the ‘spot’ was only the third occasion that it has made gains after CBSL more than two months ago on 10 March allowed it to free float, having had previously administering the ‘spot’ at various levels.

In related developments, the ‘spot’ since its free float on 10 March has fallen by between a record  Rs 130-135 (56.52-58.70 per cent) to Rs 360/365 to the dollar in two-way quotes and year on year (YoY) by between another record Rs 160.25-164.75 (80.22-802.7 per cent), thereby causing cost-push inflationary pressure as Sri Lanka is an import dependent economy.

Meanwhile, on 9 March 2022, the day before the ‘spot’ was free floated, the ‘spot’ was administered by CBSL at Rs 230 to the dollar, while a year ago on 13 May 2021 it was administered at Rs 199.75/200.25 to the dollar in two way quotes by CBSL.

In like developments, from 28 April 2021 to 9 March 2022, a unique thing happened in the country’s interbank FX market, where for the first time after the liberalisation of the economy that took place on 21 July 1977, the interbank FX market went virtually dead after CBSL started fixing the ‘spot’, void of hardly any CBSL intervention in the interbank FX market. However, the exchange rate was once more liberalized 11 months later on 10 March 2022.

 ‘Spot’ trades are settled after two market days from the date of transaction. CBSL, the steward of Government of Sri Lanka’s (GoSL’s) debt and of its foreign reserves, also deals in ‘spot’.

In similar developments, the administered value of the ‘spot’ as at Friday was Rs 360, down by a record Rs 130.50 (56.86 per cent) since 9 March and, also, weaker YoY by another record Rs 80.45 (Rs 160.50). On 9 March CBSL administered the ‘spot’ at Rs 229.50 to the dollar and on 13 May 2021, at Rs 199.50 to the dollar.

BY Paneetha Ameresekere