Dollar rate exceeds Rs. 370 in kerb market
- Hovers around Rs. 375 while Central Bank sells at Rs. 299
BY Shenal Fernando
According to reports, the black market exchange rate has readjusted to Rs. 375 following the over 47% devaluation of the Sri Lanka rupee during the past three weeks, following the decision by the Central Bank of Sri Lanka (CBSL) to float the exchange rate in order to address the foreign exchange liquidity issues in the market.
As of yesterday (28), the Sri Lankan rupee has depreciated significantly by over 47.3% and according to the average buying and selling telegraphic transfers (TT) exchange rates published by the CBSL yesterday, the selling rate of a US dollar stood at Rs. 299.0 while the buying rate of a US dollar stood at Rs. 287.7.
After announcing the decision to float the exchange rate, the CBSL stated that following the floating of the exchange rate, the foreign currency liquidity crisis existing in the country would be resolved as foreign currency that was being remitted through unofficial channels would move back to official channels.
Despite such assurances and the significant depreciation of the Sri Lankan rupee since the 7 March decision, market participants continue to complain regarding the lack of foreign exchange liquidity and critics have pointed to the failure of the CBSL to implement a concurrent interest rate to dissuade speculative elements within the domestic forex market by increasing the cost of speculation.
Speaking to The Morning Business, sources with intimate knowledge of the domestic forex market operations disclosed that in the immediate aftermath of the floating of the exchange rate, there was a significant increase in foreign worker remittances through official channels. However, such sources, while admitting that liquidity continues to be an issue in the domestic forex market, stated that it will take time for liquidity to return.
Explaining further, such sources stated that people have become accustomed to remitting money through unofficial channels which are providing them a premium over official channels. Therefore, they stated that it will take time for such people to return to official channels. In the meantime, the continuous regulatory and monitoring efforts by the authorities against black market dealers will be essential in ensuring that the kerb market will not be able to function effectively, thereby pushing people to revert to official channels.