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Kerb market USD rates cross Rs. 300 

17 Mar 2022

  • Rates hover around Rs. 300-305
  • Rupee continues to plunge
  • Loses value by over 35% within past two weeks
    BY Shenal Fernando According to reports, the kerb market exchange rate has readjusted to hover at around Rs. 300-305 despite the continuous devaluation of the Sri Lanka rupee over the past two weeks by around Rs. 35.5%. As of yesterday (16), based on data published by the Central Bank of Sri Lanka (CBSL), the selling rate of US dollars for telegraph transfers stood at Rs. 270.0 while the buying rate of US dollars for telegraph transfers stood at Rs. 264.7. The decision by the CBSL to float the exchange rate last week was made in the face of the worsening foreign exchange shortage in the country due to the dual exchange rate regime created by the flourishing foreign exchange kerb market. Consequently there was a drastic decrease in foreign worker remittances to the country through official channels as people actively sought out the premium offered by the kerb market exchange rate which was as high as Rs. 65 in the days leading up to the CBSL’s decision to float the exchange rate. Therefore, continuous upward adjustment of the kerb exchange rate despite the floating of the exchange rate is concerning as it indicates a lack of liquidity within the domestic foreign exchange market. However, speaking to The Morning Business, a source with intimate knowledge of foreign currency trading stated that he expects liquidity to return to the domestic foreign exchange market by the end of the month and claimed that the market is still adjusting to the new environment after moving away from the CBSL strategy of holding the exchange rate at Rs. 230 since mid-2021. “Once liquidity returns to the domestic market, we will see the exchange rate settle and the gap between the kerb exchange rate and official rate will move closer,” stated the source. The CBSL had fixed the exchange rate at Rs. 203 for over six months since early September 2021 before finally giving up its attempt to hold the exchange rate last Monday (7).  Making an announcement last Monday, the CBSL noted: “Greater flexibility in the exchange rate will be allowed to the markets with immediate effect. The Central Bank is also of the view that forex transactions will take place at levels that are not more than Rs. 230 per US dollar.”  In the aftermath of this announcement, the Sri Lankan rupee initially depreciated against the US dollar by only 15% to Rs. 230. This was due to the confusion created by the cryptic announcement of the CBSL and the market initially operated on the belief that the exchange rate had once again been capped at Rs. 230. However last Wednesday (9) evening, CBSL Governor Ajith Nivard Cabraal provided further clarification, stating that the exchange rate had been allowed to float after consultation with banks, and by last Thursday (10), the US dollar was quoted at Rs. 260 by licensed commercial banks (LCBs).


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