The recent slide in Sri Lanka’s rupee is unwarranted as importer dollar demand has dropped significantly since the Central Bank took policy measures to curb imports, the bank’s Deputy Governor said yesterday.
The rupee fell 0.6 percent to a new record low of 132.20 to the U.S. dollar earlier in the day, surpassing its previous all-time low of 131.60 on March 19, and market dealers attributing the drop to importers’ demand for dollars.
“This depreciation is unwarranted,” Deputy Governor Ananda Silva told Reuters.
Rupee falls 0.6 percent to a new record low of 132.20
Surpasses previous all-time low of 131.60 on March 19
“We have seen imports declining significantly since February. The letters of credit opened for imports have almost dropped by 50 percent (yearon-year) and there is less demand for dollars from importers. The current depreciation is mainly due to speculation and nothing else.”
The Central Bank, which is building up its depleted reserves, has said it may stop supplying dollars to pay for oil imports from May, its latest move to allow more flexibility in the rupee, which has been a repeated request by the International Monetary Fund in order to continue payouts from a $2.6 billion loan to Colombo.
The Central Bank halted interventions in foreign exchange markets from February 9 and said it would allow the market to determine the rupee’s level after spending more than $2.7 billion of its reserves since last July in an abortive attempt to halt the currency’s slide.
The currency has depreciated 13.5 percent since the Central Bank stepped out of the market on February 9 and 16.6 percent from November 21, when the government allowed a 3 percent devaluation in the currency.