The Sunday Leader

Rupee Down

The Exchange Rate (ER) despite a wide corridor of 20 Sri Lanka cents (SLc) experienced between its “buy” and “sell” quotes towards the end of Friday’s trading, largely held on to its previous day’s figures due to moderate buying activity by the state, a market source told this newspaper.
“If the state was an aggressive buyer the ER would have had depreciated,” he said.

The ER in two way quotes in interbank spot trading closed last week at the Rs. 126/70/90 level. On the previous market day Wednesday it closed at the Rs. 126/80/85 level. Thursday was a holiday for the market on account of Poya.

Week on week (WoW) the ER has had depreciated by 70SLc largely due to import pressure coupled with state buying of the same. It’s generally the middle rate in two way quotes which is considered as the rate at which trades are done.

On the previous day, Wednesday the ER was subjected to volatility, “compelling” the state to intervene after it dropped to the Rs.126.80 level, by offering dollars to the market at that price and continuing in the same vein on Friday as well to prevent its further fall, the market source said.
“A mix of state buying and import pressure is the reason for the depreciation of the rupee,” the source said. At the same time the state was there on a selective basis to offer dollars at the Rs. 126/80 price to buyers to prevent its further fall, the source said.

On Wednesday exporters booking forward, saw one month forwards commanding a premium price of one rupee and that of three months at a premium of Rs. 2.80/3.20 in two way quotes.

The reason why importers are not booking forward is because they think the price is too expensive, the source said.
They will have to pay a further premium over and above exporters’ premium, the former being charged by banks, encapsulating banks’ commissions, to accommodate such bookings, he said. “The reason why importers are not booking forward is that they are of the view that the rupee will not be subjected to ‘deeper depreciation’ which is also our view,” a source said.

The ER which opened last week (Monday) at the Rs. 126/10 level to the dollar fell steeply to the Rs. 126/90 level due to state buying, before stabilizing at the Rs. 126/60/70 level in two way quotes.

On the previous Friday (April 19) the ER closed at the Rs. 126/10 level,
He added.

The following day Tuesday, due to a mix of both import pressure and state buying, it further depreciated to the Rs. 126/85/95 level in two way quotes. Pre Avurudhu, the rupee was propped by Avurudhu remittances inflows, but with the end of the Avurudhu, that cushion vanished, hence the reason for the rupee depreciation, the source further said.

- Paneetha Ameresekere

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