State Defends ER At Rs. 130
State owned People’s Bank, probably at the instigation of the Government of Sri Lanka (GoSL)/ state owned Central Bank of Sri Lanka (CBSL) start selling the greenback at a discounted price of Rs. 130 on Wednesday evening at spot, interbank trading, and continued in the same vein till the following day’s (Thursday’s) morning trade, before withdrawing from the market, a source told this newspaper.
Prior to Wednesday’s intervention, the US dollar ($) was “going” at the Rs. 130/10/20 level in two way quotes. After the state withdrawal from intervention in the market, the ER marginally weakened, going at Rs. 130/130/30 in two way quotes on Thursday afternoon, before strengthening to closed at the Rs.129/70 level. The genesis of state intervention in the market last week coincided with a lead story filed by a “daily” on Monday, where it was said that President Mahinda Rajapaksa speaking at a Cabinet meeting the other day had had wanted the ER to strengthen to at least the Rs. 125 level.
A weak ER makes the prices of imported essential goods such as food and medicines to go up in value, hitting the poor and the fixed wage earner the hardest. But on the flip side, the defence of the ER may lead to the frittering away of the island’s sparse foreign exchange (forex) reserves and last but certainly not the least, the possible denial of the IMF’s final tranche of $ 426.8 million in its $ 2.5-2.6 billion standby arrangement with the IMF as a result.
However that may be, at the beginning of last week on Tuesday* (June 5), CBSL’s alleged prodding of a foreign bank to release its $ holdings to the market temporarily eased pressure on the ER that day, which saw its fall from its opening price of Rs. 131/90 to the $ to the Rs. 130 level, before climbing up to be quoted at the Rs. 131-132 levels in spot, interbank trading due to importer pressure, a source said.
But towards the end of the day on Tuesday, the state intervened in the market, offering $s at Rs. 131 a piece.
He further said that the market has remained unfazed due to alleged claims made by President Rajapaksa,that the ER should at least strengthen to the Rs. 125 level (see also the business editorial found on page 41).
Meanwhile on the following day Wednesday, the ER opened at Rs. 130/130/50 to the $ in two way quotes before strengthening to the Rs. 130/10/20 level on market play.
“GoSL’s/CBSL’s policy measures appear to be working (see also the business pages’ lead story), demand for the greenback is easing due to the lessening of import pressure,” a source told this reporter on Wednesday.
*Monday was a poya holiday for the local markets