Businesses and dealers are concerned over the alleged shortage of US Dollars in the market as the Central Bank stepped up curbs against select forward contracts this week.
Sources said that the Central Bank had stopped selling dollars for Sri Lanka Rupees, meaning one could only do Telegraphic Transfer if you have dollar credit. “Some banks don’t have dollars,” they claimed.
However, banking sources clarified that it was business as usual for spot deals, though there were some curbs on forward contracts. “All banks are quoting below Rs. 200 for the dollar, hence the market has stabilised,” a spokesman for a State bank told the Daily FT. He also said conversion of export earnings as well as inflow of remittances had improved.
“I don’t see a reason for importers to have any concerns,” he added.
Other sources said select forward contracts had been limited to one week and one month, whilst yesterday there were no quotes on forward contracts in the inter-bank market. They also said some banks quoting high premium on forward contracts had come under flak from the Central Bank recently.
The TT selling rate was quoted as Rs. 199.87 for the US Dollar by the Central Bank, lower in comparison to Rs. 203.50 on 8 April.
Wealth Trust Securities said yesterday the USD/LKR on Spot contracts was traded at a level of Rs. 199.74 to Rs. 199.75. On 23 April, it was Rs. 191.93.
“The total USD/LKR traded volume for 28 April was $ 66.20 million,” Wealth Trust added. On the previous day USD/LKR traded volume was $ 53.55 million.
The Central Bank in a direction issued on Sunday 25 April curtailed forward sales and purchases of foreign exchange by commercial banks.
In view of the need to avoid excess volatility in the forex market and the impact on risk management, banks were directed to refrain from entering into forward contracts with value date beyond spot date, except for the following until further notice.
They are forward purchase of foreign exchange from their customers including from exporters, facilitate SWAP arrangements on foreign exchange borrowings of licenced specialised banks and finance companies in order to hedge their forex exposures arising from foreign currency borrowings approved by CBSL; facilitate SWAP arrangements on forex borrowings of corporate clients to hedge their forex exposure arising from forex borrowings approved by CBSL; amend/extend the value date of existing forward/SWAP contracts of clients at historical rates based on express requests from clients after verifying the bona fide of the transactions; entering into inter-bank forward and SWAP transactions with single counterparty (i.e. only between two banks) and entering into forward cross currency transactions.
In recent weeks, there had been no quotes on three months forward market, whilst a year ago it was Rs. 193.27.
One-month quote was Rs. 194.40 as of 23 April 2021 as against Rs. 199.78 in the previous week and Rs. 194 a year ago. Last week, average daily interbank forward volume was $ 38 million, lower from $ 40 million in the previous week.
Last week, Central Bank also suspended commercial banks and national savings from purchasing Sri Lanka International Sovereign Bonds until further notice. In parallel, the Treasury has also applied temporary measures to curb unnecessary outflow of foreign exchange.
Confirming resilience despite challenges arising from the COVID pandemic, exports in March topped the $ 1 billion mark for the first time in six months. The latest performance reflects near $ 1 billion exports in each of the first three months of 2021. First quarter exports amounted to $ 2.6 billion up by 11.5% from a year earlier, according to provisional data released by the Export Development Board on Wednesday.
The services exports estimated by EDB, which includes ICT/BPM, construction, financial services and transport and logistics show exports of $ 1.1 billion for the first quarter compared to $ 993 million recorded in the corresponding period of 2020.
Workers’ remittances in the first two months of 2021 amounted to $ 1.25 billion up by 13% from a year earlier.
According to the Central Bank, during the year up to 23 April, the rupee has depreciated by 3% against the US Dollar though in recent weeks the plunge had been sharper before stabilising in the past few days.
(FT)