Tuesday, February 28, 2012

Rupee hits new low

Sri Lanka's rupee hit a new record low of 123.20 on Tuesday on importer dollar demand, but a state bank sold greenbacks to reverse the drop in an apparent break with the central bank's new policy not to intervene at a specific price, dealers said.

"A state bank sold dollars at 123.00 and gradually brought down the level to 121.00," a currency dealer said on condition of anonymity. Three other dealers confirmed the move.

The rupee on Monday closed at 121.30/121.50.

Some dealers said the central bank has asked currency dealers to bring the trading level to 121.00 via moral suasion, a method of coercing the market to move in line with the monetary authority's desires without direct force.

Central Bank Governor Ajith Nivard Cabraal said the sharp fall was on thin volume, but declined to confirm if the state bank had intervened.

"This is an overreaction, but it will stabilise soon and we may do something on that," Cabraal told Reuters. When asked if the central bank would use moral suasion to protect the currency, he said: "We may do that as well."

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