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Deeper rupee depreciation post poll - Rupee downed only 0.04%, China’s, S’pore’s currencies sharply downed 4%

Ceylon Finance Today: While other economies are sharply depreciating their currencies to be globally competitive in exports in particular, Sri Lanka however depreciated its currency by a mere five Sri Lanka cents (0.037%) to Rs 133.80 to the US dollar in interbank spot trading yesterday.

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Ceylontoday, 2015-08-13 02:00:00

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Deeper rupee depreciation post poll - Rupee downed only 0.04%, China’s, S’pore’s currencies sharply downed 4%
By Paneetha Ameresekere

Ceylon Finance Today: While other economies are sharply depreciating their currencies to be globally competitive in exports in particular, Sri Lanka however depreciated its currency by a mere five Sri Lanka cents (0.037%) to Rs 133.80 to the US dollar in interbank spot trading yesterday.
In contrast China, the world's largest economy had depreciated its local currency by 4% in the two days to yesterday. Similarly, Singapore, whom some say that Sri Lanka wants to emulate, has depreciated the Singapore dollar by 4.44% to S$ 1.41 to the US dollar during this period.

Market sources told Ceylon FT the reason why Sri Lanka hasn't depreciated its currency sharply is because of Monday's general election. A depreciated
currency would make imports expensive, pushing up inflation, and Sri Lanka is an import dependent economy.
Prices going up on the eve of a crucial election will not go down well with the voter, to the detriment of the incumbent government. Hence the reason behind doing an "eye wash" depreciation of the rupee yesterday, they said.
Sri Lanka may well do a deeper depreciation of its currency after the poll, the sources said.
Volumes yesterday, like on previous days continues to remain thin, with the only seller in the market at the discounted dollar price of Rs 133.80 being only the Central Bank of Sri Lanka (CBSL), they said. CBSL's discounted dollar sales are on the conditions that buying banks will first have to conform CBSL's net open positions, coupled with the submission of the necessary import documents.
Forwards trades were also thin, with CBSL mandating that the maximum depreciation allowed for the rupee being two Sri Lanka cents per diem. Forwards trading were being done up to four months with volumes in the forwards market being confined only to a maximum of four months, they said.

Meanwhile, with the only sources of excess liquidity being money printing, yesterday's primary Treasury (T) Bill auction saw the weighted average yields (WAYs) of the two tenures on offer, namely the six month (182 day) and the benchmark one year (364 day) T Bills on offer, rising sharply by seven and nine basis points each to 6.57% and 6.63% respectively at yesterday's auction.
The Government borrowed a total of Rs 21,963 million yesterday by selling T Bills and T Bonds, thereby taking its gross borrowings by selling T Bills and T Bonds to the market in the calendar year to date to Rs 1,179,591 million; a Rs 631,064 million or a 115.05% year on year increase, compared to a similar borrowing of Rs 548,527 million in the corresponding period last year.
Such increased borrowings are for the dual purposes of keeping the 8 January, 2015 Presidential Poll promises made by the new regime to the masses, coupled with keeping newer pledges made, by targeting Monday's general election