ECONOMYNEXT – Sri Lanka’s parallel rupee markets had topped 230 to the US dollar this week up from around 225 last week, while forward discounts in dollar/rupee swaps eased slightly, market participants said amid money printing and surrender requirements.
In the swap market spot/one year deals were quoted at a discount of 1500/1400 cents, a slightly lower than an earlier 1800 levels with a state bank no longer in the market, market participants said.
Spot/6 month swaps were quoted at 1000/800, spot/3 months 615/570, spot/2 months 380/400 and spot/1 month 380/400.
A discount indicates that the dollars bought at the spot rate today (200) will be sold back to the seller at the end of the period at stronger forward rate (185).
Forward dollar are at a discount because rupee rates are kept down with money printing, which has created a dollar shortage and driven the yields up.
US dollars were trading around 230 to the US dollar in the kerb market, up from 225 two weeks ago and ‘Undiyal’ net settlement transfers were around 232 levels, market participants said.
Banks are rationing dollars for LCs, forcing some importers to settle through Undiyal style net settlement systems at higher rates.
Sri Lanka keeping the official exchange rate around 203 to the US dollar amid excess liquidity in money markets. Over the past week excess money came from window borrowings and only about two billion rupees from T-bill purchase of the central bank.
The central bank has also imposed surrender requirement which also creates money liquidity while taking dollars away from a peg that is already under pressure, or a strong side convertibility undertaking is imposed on a peg that is on the weak side.