"COLOMBO (Reuters) - The Sri Lankan central bank will allow the rupee to float from Friday by not quoting a specific level in the market, the bank has told currency dealers, according to sources who had knowledge of their meeting.
"The official said the central bank will allow the market to decide the exchange rate by not guiding with a specific rate. However, he said the bank will intervene if the levels are too high," a source told Reuters. Three other market sources confirmed the move.
Central Bank Deputy Governor Nanadalal Weerasinghe, when asked, did not comment about chairing the meeting with currency dealers nor on any decision to float the rupee.But he told Reuters in a text message. "We will intervene if there will be excess volatility."
The central bank on Thursday said it received $1.1 billion from a $1.5 billion swap agreement with the Reserve Bank of India (RBI) and it expected the rupee exchange rate to stabilise. The central bank usually directs the market via state banks' dollar trade. The rupee hit a record low of 134.75 per dollar on Thursday, after a state bank raised the currency's peg against the dollar by 25 cents to allow the exchange rate to depreciate and sold it at the same rate.
The rupee, which has fallen 2.7 percent so far this year, has been under heavy downward pressure due to strong importer dollar demand under a lower interest rate regime.