Rupee falls further against dollar
*Banks increasing ‘last resort’ borrowings from Central BankFebruary 14, 2012, 9:07 pm
The rupee continued to slide against the greenback on Tuesday (Feb. 14) closing at Rs. 120.10/30 against the dollar but not before reaching a low of Rs. 120.40 at one point during the day, dealers said.
The rupee has now fallen by nearly 5.7 percent since the Central Bank let go of the Rs. 113.90/US$ exchange rate on February 02. The Central Bank has said it would no longer intervene to stabilise the exchange rate after it came under fire for selling more than US$ 2.5 billion since July 2011 to keep the exchange rate steady amidst severe import demand.
The trade deficit had more than doubled for the period January to November 2011 and import demand has not let up so far this year, dealers said. The Central Bank has also increased key policy interest rates and introduced ceilings to commercial bank credit growth in a bid to curtail import demand. With reserves at a low level, the government had also increased domestic fuel prices to reflect realities in the global economy.
Dealers said the rupee’s fall was mainly driven by panic. "But this was something we all expected," a dealer said. Some dealers believe that the market would soon stabilise once the equilibrium rate was found.
Importers are scrambling to buy their dollar requirements and exporters are not converting their holdings in the expectation that the rupee would fall further. Before the depreciation, exporters had been active players in the foreign exchange market with importers taking things easy.
"If foreign inflows do improve, then we could easily see some pressure for the rupee to appreciate and the market players need to factor this in when it makes decisions. For now, there is demand for dollars. With the panic buying by importers, we could see the rupee fall further. But we believe things would soon settle once the right exchange rate is established by the market," dealers said.
Dealers quoted a wide band for where they think the exchange rate would settle; anything between Rs. 118/US$ to Rs. 122/US$.
Credit demand is still buoyant and the Central Bank had to pump in Rs. 12 billion yesterday to help certain banks struggling to maintain adequate liquidity positions (since the February 03 policy rate hike, the Central Bank has released Rs. 62 billion into the market and dealers said nearly Rs. 330 billion had been printed since December 16, 2011).
But this was not enough.
Certain commercial banks also had to use the last resort window of opportunity to borrow from the Central Bank via the reverse repurchase window at 9 percent. On Tuesday Rs. 4.45 billion was lent to commercial banks from this window. Last Friday, the Central Bank lent Rs. 1 billion and Rs. 3 billion on Monday.
Overnight interbank rates inched up yesterday as well to 9.69 percent from 9.62 percent the previous day for loans without collateral and 8.75 percent from 8.70 percent for borrowings backed by Treasury bills.
The Sri Lanka Inter Bank Offered Rate stayed flat at 9.69 percent.
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Last Updated May 25 2013 | 03:45 pm