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Int’l Currency Turmoil Hits Rupee

  • ER Slides below Rs. 131 Levels

Picture Courtesy: www.travel-srilanka.eu

The exchange rate (ER) crashed to the Rs. 131/30 levels on Friday before partially recovering to be quoted at the Rs. 131/131/20 levels in two way quotes later during the day, a market source told this reporter.
He attributed this to import demand coupled with the ripple effect caused by the slide in the Indian rupee, with the local currency being benchmarked with that of its giant neighbour’s.
“Due to the instability of the local rupee, investors in Government securities are fleeing from the market, further destablising the ER, the situation is very bad,” the source said. The recent controversial “The Finance Company plc-National Savings Bank” deal also does not help to restore investor confidence, he said.
The economic crisis in Europe has made investors to seek refuge in the US dollar ($), thereby causing the greenback to rise. Though oil prices are falling, partly due to the European crisis and partly due to tensions in Iran receding: That however has not proved to be a soother to the local currency, the source added.
Meanwhile with the euro in turmoil, in fact with all other currencies other than the $ in a state of flux, not least the Indian rupee, thereby making investors to seek refuge in the greenback, the reverberations of those actions were also felt in Sri Lanka, which saw the ER slide below the Rs. 130 levels to be going at Rs130/50/90 in two way quotes at Thursday’s trading, made worse due to  the settling of certain import bills.
The previous day Wednesday it slid to the Rs. 130 levels in interbank trading.
However that which  is positive is the crash of oil prices due to Iran giving up on its hardline stance on the nuclear issue, probably feeling the bite of US sanctions, and, according to reports, thereby allegedly being prepared to allow nuclear inspectors to visit its nuclear sites.
Sri Lanka which runs massive current account and trade deficits, due largely to its burgeoning oil import bill, will indeed find it comforting if oil prices continue to tumble, thereby relieving pressure not only on its current and trade accounts, but also on the ER.However that may be, if President Mahinda Rajapaksa in his last week’s visit to the Doha Investor Forum is successful in getting Arab investments into the country that will also ease pressure on the ER, a market source told this newspaper. That however is yet to see the light of day.
The ER at the beginning of the week on Monday, hovered closer to the Rs. 130 levels to the$ in interbank trading, unchanged from the previous market day, Friday, May 18 figure, on the back of thin volumes, he said.
With Europe in an economic crisis, the Arabs however are cash rich due to good prices fetched by their main export crude oil in international markets, the source said on Monday (May 21). So a good bet is to try to tap those investors, he added.
Meanwhile, the following day Tuesday the ER continued to hold on to the Rs. 129.80 levels, with a source then saying that pressure on the ER to deteriorate further was slackening with the government’s recently imposed import taxes taking its toll by mitigating demand on the ER, but the story the following day Wednesday, and thereafter as the aforementioned events showed, was different.

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