REUTERS: Sri Lankan spot rupee fell to a record low yesterday after a state bank, through which the Central Bank usually directs the market, lowered its dollar selling rate by 20 cents to Rs.134.20 per dollar, dealers said.
The currency fell 0.15 percent, after staying steady for three straight sessions, as the state-run bank lowered its dollar selling rate.The rupee hit 134.20, its lowest level ever, compared with Wednesday’s close of 134.00, which was the previous all-time low.
The move comes a day after currency dealers told Reuters that it would not be sustainable to defend the local currency with state bank dollar sales in the long run as this could bring down foreign exchanges reserves to a “dangerous level”.
“They (Central Bank) will gradually allow depreciation as it is not sustainable to defended the currency,” a dealer said on condition of anonymity.
The rupee, which fell 2.27 percent so far this year, is on the decline mainly due to a stronger dollar, the Central Bank has said, while higher imports and rising private sector credit in a lower interest rate regime also weighed on the currency. Central Bank Governor Arjuna Mahendran said last week that the country should let market forces determine its rupee exchange rate and warned that trying to buck the global trend of a rising dollar was “suicidal”.
One-week forwards were weaker at 134.35/55 per dollar compared with Wednesday’s close of 134.15/35, while three-month forwards were at 136.04/10 per dollar compared with Wednesday’s close 135.90/136.10.
On Wednesday, Sri Lanka called on banks and investment houses to propose terms for a foreign currency term financing facility as it seeks to raise up to $500 million to meet the costs of some externally-funded projects stated in its 2015 budget after the government raised nearly $1 billion via a 10-year sovereign and development bond on May 28.
Dealer also said some foreign investors in government securities were selling rupee-denominated bonds, which could put pressure the currency, along with importer dollar demand. In the stock market, the benchmark index was up 0.11 percent at 7,057.47 by 0609 GMT. Turnover stood at Rs.262.6 million.