From monday onwards, more possible to collaps the market untill 8th Jan,2015.
You like or dislike this will happen.
Ceylontoday, 2014-12-07 02:00:00
By Paneetha Ameresekere
With foreign investors having made exit Rs 43 billion worth of investments in Treasury (T) Bills and T Bonds in the past 14 weeks, banking sources told Ceylon Today more such exits were expected in the coming weeks due to the prevailing uncertain political climate in the country, leading to the 8 January 2015 Presidential Polls.
Rs 43 billion is equivalent to, between US$ 328 million and US$ 330 million.
Such exits cause pressure on the rupee. As a result, in the 14-week review period up to now, the exchange rate (ER) has depreciated by Rs 1.47-Rs 1.62 to the dollar, making imports more expensive to the consumer.
In order to mitigate such pressure on the rupee, Central Bank of Sri Lanka (CBSL) has expended US$ 315.80 million from its foreign currency reserves to meet banks, together with Government of Sri Lanka's (GoSL's) foreign exchange (FX) needs in the three months upto November, data showed.
GoSL's and CBSL's foreign currency reserves as at end September 2014 stood at US$ 7,837.25 million, equivalent to 87.34% of GoSL foreign debt servicing commitments as at end September 2015.
Sri Lanka is an import-dependent economy, depending on imports for its basic essentials such as rice, medicines and petroleum fuels. Further, a weak ER also makes foreign debt servicing more expensive to the GoSL.
GoSL's foreign debt servicing in the 12-month period ending 30 September, 2015 is estimated to be US$ 6,845.01 million.
Therefore, CBSL is imposing moral suasion (MS) pressure on banks in order to prevent the rupee's further depreciation, they said. MS means where CBSL questions importing banks why they are making such imports, especially so in the event they try to buy dollars at more than Rs 132 and above per unit, according to one of its recent cut off point for the dollar.
"On the 80:20 principle, 80% of such exits are due to political uncertainty and the balance 20% due to the recovery of the US economy," they stated.
The ER which closed at Rs 130.20/23 to the dollar in "spot" trading at end August, has since been trading in the range of Rs 131.70-131.85 to the dollar. At last year end, the ER had closed at Rs 130.80 to the dollar, a weakening of between 90 cents and Rs 1.05 since, or, in percentage terms, a decline of between 0.69% to 0.80%.
However, globally, all major currencies have weakened by between 7-8% against the dollar since, they said.
Spot trades are settled two market days after the date of transaction and "spot next" after four. MS pressure compels banks to deal in spot next, in the hope by CBSL that that would compel dollar selling banks to come down on their rates vis-à-vis spot trades and such like, in order to get their money quicker, rather than having to wait for four days.