A sharp intra-day plunge of the rupee yesterday caused widespread concerns in financial markets, businesses as well as in Parliament whilst exposing loose statements by those in the Government defending the artificial strength of the currency.
According to the Central Bank, the Telegraphic Transfer selling rate for the dollar was Rs. 195.21 higher by 1.7% from Rs. 191.97 on Monday.
At interbank trade, the dollar one month forward rate ended at Rs. 205.50 with implied sport at Rs. 207, according to dealers. The one month forward contracts were seen closing the day at levels of Rs. 204/206 yesterday in comparison to its spot contract closing of Rs. 194/198 the previous day, according to Wealth Trust Securities.
The rupee has appreciated around 4% since 16 April largely due to State banks usually who act on behalf of the Central Bank selling around $ 65 million on 19 April apart from doing same late last week. But currency dealers’ expectations of the rupee strengthening was found to be short lived yesterday judging by its erratic behaviour. Businesses were confused as commercial banks quoted different rates a development which was highlighted in Parliament by the main Opposition Samagi Jana Balawegaya (SJB) MP Dr. Harsha de Silva yesterday.
He put the quantum of the depreciation at Rs. 14 against the dollar.
De Silva told the Parliament that despite State Minister of Money and Capital Markets and State Enterprise Reforms Ajith Nivard Cabraal tweeting on Monday that the rupee has appreciated, the market behaviour yesterday proved otherwise.
“SL Rupee further appreciated against US Dollar today. Current buying and selling rates of US Dollar are Rs. 187.93 and 191.97 respectively - CBSL We are a Government that does what it says. @HarshadeSilvaMP @FitchRatings @MoodysInvSvc #Rupee #SriLanka #GoSL #economicrecoveryplan,” Cabraal tweeted on Monday, recalled Dr. de Silva.
He pointed out that however according to the market figures yesterday at 3:21 p.m. the rupee has depreciated by Rs. 14 against the dollar.
“When the market opened today (20) the rupee was 192, but by 3:21 p.m. HNB (Hatton National Bank) quoted Rs. 208, Commercial Bank quoted Rs. 206 and State-owned People’s Bank quoted Rs. 206.50. This goes to the history of Sri Lanka, as an era where rupee depreciated drastically,” Dr. de Silva said.
He explained that this is clearly a depreciation of the rupee against the dollar and not rupee devaluation as the Government claims.
“Devaluation has happened in the past. In 2012 then President and Finance Minister Mahinda Rajapaksa took a Budget decision to devalue the Rupee. This is not a devaluation, but a depreciation,” he stressed.
“Have you ever in life noticed a sharp depreciation of Rs. 14 against the dollar?” Dr.de Silva queried from those in the ruling benches in Parliament yesterday. “I would like to ask what is happening,” Dr. de Silva added.
In mid-March Cabraal also tweeted that the right policies are now in place for non-debt forex inflows. “It is only a matter of time before the Rupee appreciation process starts. Businesses and industries must prepare for that transformation,” he added.
He also said businesses and investors should factor the positive developments during the past few days in their investment decisions. SWAP with China, interest rates at historic low levels, country opening out for tourism, strong vaccination program, the first IPO in several years were among the factors Cabraal listed in his mid-March tweet.
According to the Central Bank, during the year up to 16 April, the rupee’s depreciation against the dollar was 6.8% as against 5.2% during the year up to 12 March and 4.2% up to 12 February.
(FT)