ECONOMYNEXT – Sri Lanka rupee was offered at 346 rupees at open in the spot market on Thursday with no buyers, dealers said up from yesterday’s close of 353.46/353.50 to the US dollar.
The central bank announced a guidance peg of 353.46 to the US dollar Thursday with a 7.50 rupee variance on either side.
The early offer at the 346.15 stronger end of the band.
The rupee had been under upward pressure after the central bank stopped printing money, the budget deficit was financed by the market and private credit turned negative.
The spot market became active and rupee started to appreciate steeply after the central bank trimmed a surrender requirement Monday leaving more dollars to the market.
Sri Lanka’s forex markets became dysfunctional in 2020 when the central bank started engage in extreme output gap targeting, placing price controls on bond auctions expanding on the 2015 and 2018 currency crises which were triggered by targeting the middle of a corridor with excess liquidity.
The central bank usually triggers currency crises by rejecting bids for bill auctions and returning printed money to holders of bills sold to finance deficits in prior years.
Sri Lanka’s private credit is now negative and the budget deficit is also reduced with higher tax revenues.
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