Sri Lanka’s central bank (CB) on Wednesday said it may defer plans to stop supplying dollars for oil-import bills and vowed to act against currency speculation after depreciation fears pulled the rupee to an all-time low for a second day.
The rupee slid to a record low of 132.90 to the dollar on Wednesday, as importers bought the US currency on fears the local unit will weaken further. While the volume has been thin, demand for dollars has increased depreciation pressure in the absence of heavy inflows and exporter conversion of the US currency amid uncertainty about dollar supply.
On March 29, the central bank said it would stop dollar supply for oil bills from May 9. But on Wednesday, Central Bank Governor Ajith Nivard Cabraal told Reuters in a telephone interview, “For the sake of stability, if we feel we need to extend a decision, we will do that, including (supplying dollars for) oil bill payments.”
However, the comments on possibly continuing dollar supply failed to strengthen the rupee, which hit an all-time low of 133.50 to a dollar.
Oil imports account for around $15 million of daily volume in Sri Lanka’s foreign exchange market, which average volume of varies between $60 million to $100 million a day, according to central bank officials.
Currency dealers said the central bank has gradually reduced dollar supply to finance oil bills since it announced plans to halt such sales. Since then, the local currency has depreciated 4.4 per cent.
However, Cabraal said the depreciation was mainly due to speculation and had nothing to do with importer dollar demand.
“What we have found out is some dealers push up the exchange rate without any proper underlying transactions,” the governor said. “It is against the exchange control act. We are studying these speculating dealers and we will take action against them.”
Since February, the central bank has imposed regulations to curb speculation and has tried to use moral suasion.
Dealers rejected Cabraal’s assertion of speculation as the dollar positions of banks have been limited by the central bank.
Many dealers said they are not ready to believe the central bank comments unless anything it says materializes after the monetary authority could not stop the rupee fall after it promised there will not be any depreciation in 2012.
The currency has depreciated 14.4 per cent since the central bank stopped intervening to defend a specific price on Feb.9 and 17.4 per cent from Nov.21, when the government allowed 3 per cent devaluation.
Many leading importers said they find “extremely high volatility” in the market, yet there was no problem with the dollar liquidity in the market.