"The US dollar opened at a level of Rs. 133.70-85 on Friday. Light importer demand in early trade saw the rupee weakening to Rs. 133.75 against the greenback. However, heavy exporter selling saw the US dollar slide to a low of Rs. 133.00 where a state name and some importers joined in to provide support to the greenback. The rupee strengthened to close at 133.25-45," the Sri Lanka Forex Association said.
Currency dealers said they expected the rupee to stabilise at around Rs. 128/Rs. 130 against the dollar in the months ahead.
Some quoted a low of Rs. 128 while others said the rupee could still breach the Rs. 135 barrier against the dollar.
As reported earlier in these pages, the IMF Executive Board will meet at the end of this month to decide on the fate of the last tranche under the US$ 2.6 standby facility arrangement with talks on for a monitoring programme which would involve a further US$ 500 million. The country will also float a US$ 1 billion Eurobond issue to rollover an earlier US$ 500 million Eurobond issue in October.
The Central Bank and the Treasury have both said the exchange rate would settle around the Rs. 125 mark, but the market believes otherwise.
"There is a definite slow down in importer demand. Essentials are still being imported but we are seeing a drop in demand for the fancy stuff. We believe the pressures on the exchange rate would ease, but the exchange rate would settle at around the present level. For the rest of the year, we expect the rupee to hover around Rs. 130/Rs. 135 levels against the dollar, but mostly at the lower end of this range. We had earlier estimated the exchange rate to settle at Rs. 125 to a dollar. We have considered the expected inflows into our forecast," one currency dealer said.
A senior Central Bank official told Reuters last month that the exchange rate would settle at around Rs. 130/Rs. 131 to a dollar, although the authorities would like to see it settle around Rs. 125/Rs. 128. The Central Bank published a clarification the next day stating that the Rs. 125 level predicted by it and the Treasury was unchanged.
Meanwhile, dealers also said there was a marked fall in private sector credit growth with interest rates moving North and the Central Bank imposing an 18 percent cap on credit growth.
"We are seeing a huge slowdown in credit growth. Last month we saw a big reduction in lending," a currency dealer said.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=56286