The Sri Lankan rupee (LKR) opened stronger today, trading at 307.50/90 levels compared to yesterday’s close of 307.90/95. However, it subsequently weakened slightly to reach 307.90/308.10, with official purchases playing a role in the movement.
Analysts attribute the rupee’s stability to the Central Bank’s largely deflationary policy, characterized by slow private credit growth and improved government borrowings. This combination has resulted in a balance of payments surplus, contributing to currency stability.
Market participants noted that banks tend to sell dollars and maintain negative net open positions when the Central Bank allows the LKR to appreciate. Conversely, the rupee becomes more volatile when small fluctuations in import demand – driven by changes in credit – occur, as the Central Bank intervenes by selling dollars and banks adjust their positions accordingly.
The bond market remained largely unchanged with yields showing minimal movement. Specific bonds maturing on various dates exhibited minimal fluctuations compared to yesterday’s closing values.
In summary, the Sri Lankan rupee is experiencing relative stability due to the Central Bank’s policies and a positive balance of payments situation. However, the currency remains susceptible to changes in import demand and Central Bank intervention. The bond market also reflects this stability with minimal yield movement.