New Govt. fails to strengthen rupee

0
33

The benchmark, albeit administered market ‘spot’ closed unchanged for the fifteenth consecutive market day at
Rs 360/364 to the US dollar in two way quotes on Friday (22 July), unfazed by the swearing in of a new President (UNP leader Ranil Wickremesinghe, new Premier (SLPP Government’s former Leader of the House Dinesh Gunawardena) and Cabinet on Thursday and Friday respectively, market sources told ‘Finance Today’.

However, from 21 June 2022 to 29 June 2022, the ‘spot’ was trading weaker at Rs 360/365 to the dollar in two way quotes, before strengthening by a rupee to be quoted at Rs 360/364 to the dollar in two way quotes on the following day, ie on30 June 2022.

They said that the strengthening of the rupee after a 10-day lapse on 30 June was led by the positive outcome that the IMF had in their discussions with the Government of Sri Lanka (GoSL), which “face to face” talks concluded on that day.

Meanwhile, on 20 June 2022, the administered market ‘spot’ strengthened by Rs 1 after nearly 26 months to close at Rs 359/364 to the dollar in two way quotes due to slack demand, before weakening to Rs 360/365 to the dollar in two way quotes the following day 21 June and remaining that way up to 29 June, sources said.

Prior to 20 June, the last time the exchange rate (ER) made gains was on 28 April 2021, where it was artificially strengthened by Central Bank of Sri Lanka (CBSL), by between Rs 3-4 to be trading at Rs 199/200 to the dollar in two way quotes, where, however, trades were restricted to Bank-client and not Bank-Bank, similar to the current state of affairs.

On 28 April 2021, the guided, market ER, like now, was the ‘spot’, while on the previous day 27 April, 2021, the market ER was one month’s forwards which closed at Rs 202/204 to the dollar in two way quotes.

In related developments, during this period last year, where then too the administered, made worse by an inflexible market ‘spot’ in operation, closed unchanged for the eleventh consecutive market day to 22 July 2021 at Rs 202/203 to the dollar in two- way quotes.  

  Meanwhile, by Friday, the administered market ‘spot’ was down by between 78.22-79.31 per cent (Rs 158-161) year on year (YoY), thereby causing cost push inflationary pressure as Sri Lanka is an import dependent economy, sources said.

The band in which the ‘guided market ‘spot’ may currently operate is fixed at +/- three per cent of the officially administered ‘spot’ value, where the latter is applicable for transactions involving the GoSL, CBSL and or between the GoSL and/or CBSL with the market, which was fixed at Rs 361.30 to the dollar on Friday.

They further said that trades in the administered market ‘spot’ (Rs 360/364) on Friday were mainly restricted to ‘Bank-client’ outright trades, while the interbank foreign exchange (FX) market was however dominated by swaps, which were outside the domain of the FX market for this purpose.

In like developments, the administered ‘spot’ for official purposes, such as for trades involving CBSL, GoSL and/or CBSL, GoSL and the market, YoY to  Friday has depreciated by  80.74 per cent (Rs 161.40).

 On Friday, the value of this official administered ‘spot’ was fixed at Rs 361.30 to the dollar, while a year ago it was Rs 199.90. Meanwhile, YoY, the straitjacketed, inflexible administered market ‘spot’ a year ago was fixed at Rs 202/203 to the dollar in two way quotes, unchanged for the eleventh consecutive market day to  22 July 2021.  ‘Spot’ trades are settled after two market days from the date of transaction. CBSL, the steward of GoSL debt and of its foreign reserves also deals in ‘spot’.

By Paneetha Ameresekere