By Paneetha Ameresekere
Ceylon Finance Today: The foreign exchange (FX) market has to serve two masters, Central Bank of Sri Lanka (CBSL) and its management, that is its dilemma, market sources told Ceylon FT yesterday (25 February).
While CBSL released the cap on forwards premia on Tuesday (24 February), however, it is keeping a watch over prices by moral suasion, by allowing the exchange rate (ER) to trade only within a band ranging from Rs 133.20-133.50 to the US dollar up to one week's forwards in interbank trading, they said.
CBSL is not allowing prices to go beyond that, sources said.
Nevertheless, the 'spot' is capped at Rs 132.90, they said. Till Tuesday, forwards premia too were capped at two Sri Lanka cents (SLc) per day, nevertheless, though this cap was removed by CBSL, CBSL's moral suasion, like the Sword of Damocles, hangs over banks' heads, by not allowing forwards to trade beyond the aforesaid range of Rs 133.20-133.50, sources said.
The previous Governor Ajith Nivard Cabraal may have had a million faults, but at least as far as the FX market was concerned he had a direction, they said. However, in the case of the present regime, nobody in authority wants to take a decision.
"As a result, we are being squeezed by the management to show profits, but at the same time when we try to get more rupees for dollars, we are pulled up by CBSL," they said.
Pressure on the rupee to depreciate is caused by the twin effects of import demand and Government of Sri Lanka's foreign debt servicing commitments. Sri Lanka runs a deficit in its current account caused chiefly by carrying a negative trade balance.
www.ceylontoday.lk
Ceylon Finance Today: The foreign exchange (FX) market has to serve two masters, Central Bank of Sri Lanka (CBSL) and its management, that is its dilemma, market sources told Ceylon FT yesterday (25 February).
While CBSL released the cap on forwards premia on Tuesday (24 February), however, it is keeping a watch over prices by moral suasion, by allowing the exchange rate (ER) to trade only within a band ranging from Rs 133.20-133.50 to the US dollar up to one week's forwards in interbank trading, they said.
CBSL is not allowing prices to go beyond that, sources said.
Nevertheless, the 'spot' is capped at Rs 132.90, they said. Till Tuesday, forwards premia too were capped at two Sri Lanka cents (SLc) per day, nevertheless, though this cap was removed by CBSL, CBSL's moral suasion, like the Sword of Damocles, hangs over banks' heads, by not allowing forwards to trade beyond the aforesaid range of Rs 133.20-133.50, sources said.
The previous Governor Ajith Nivard Cabraal may have had a million faults, but at least as far as the FX market was concerned he had a direction, they said. However, in the case of the present regime, nobody in authority wants to take a decision.
"As a result, we are being squeezed by the management to show profits, but at the same time when we try to get more rupees for dollars, we are pulled up by CBSL," they said.
Pressure on the rupee to depreciate is caused by the twin effects of import demand and Government of Sri Lanka's foreign debt servicing commitments. Sri Lanka runs a deficit in its current account caused chiefly by carrying a negative trade balance.
www.ceylontoday.lk
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