Central Bank of Sri Lanka explains reason for rupee volatility

Aug 4 (NewsWire) – Sri Lanka sought to calm investors over volatility in its currency after the rupee fell the most in Asia last month, with a Sri Lanka central bank official saying there isn’t significant pressure from current-account flows in the near term, Bloomberg reported.

According to Bloomberg News, the central bank’s director of economic research, P K G Harischandra, said at a briefing on Thursday that the moves in the rupee are due to speculation and banks covering open positions linked to the exchange of defaulted dollar debt for new local bonds.

Stressing that in the second half of the year, Sri Lanka will see lots of inflows under the International Monetary Fund program, Harischandra said, therefore, beyond fundamentals, there won’t be major fluctuations in the rate.

The Rupee tumbled more than 5 per cent in July after being the best-performing currency in Asia in the first half of the year.

The government is pushing ahead with debt restructuring and said last week that about USD 791 million of Sri Lanka Development Bonds —- which are dollar-denominated bonds mainly held by domestic banks —- had agreed to swap the debt. Sri Lanka secured a USD 3 billion IMF bailout in March, with the lender disbursing the amount in stages.

Harischandra noted that the CBSL does not target a specific rate under a flexible exchange-rate policy and allows the currency to move.

Meanwhile, the Rupee has recovered this week and is set for a gain of more than 3 per cent, its steepest weekly advance since March.

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