A parallel exchange rate took hold in Sri Lanka during the recent forex-market turmoil, with panicked importers buying dollars at rates as high as Rs. 380 to 400 in the forward market while the official interbank rate hovered around Rs. 330, Central Bank Governor Nandalal Weerasinghe has disclosed.
Speaking to reporters after the Central Bank raised its policy rate by 100 basis points to slow credit, the Governor said the interbank market had been thinly traded near Rs. 330 while banks sold dollars to customers at de-linked rates through internal matching.
“When the interbank market was around 330 levels, importers were buying dollars at 345, 350, at one time 354 could be seen,” he said. “In addition, through forwards some importers had bought dollars at 380 to 400 rupees after panicking and getting excited.”
Weerasinghe described the gap between the interbank rate and the rate offered to customers as a “distortion.” Forex dealers met the Central Bank last Thursday, and steps were taken to let dealers quote freely so the interbank rate could converge with commercial bank rates.
Once dealers were allowed to quote freely, the interbank spot rate moved up sharply and triggered exporter selling, market participants said, with exporters also wary of a possible cut in the foreign-exchange conversion window from 90 to 30 days.
The Governor framed the wider currency slide as a normal response to external shocks rather than instability, noting inflation had risen from about 2% to 5% amid Middle East tensions. The rupee has since rebounded toward Rs. 320 levels.
