ECONOMYNEXT – Sri Lanka's central bank would probe market transactions Central Bank Governor Indrajit Coomaraswamy said after the rupee fell sharply in late April and May after a bout of money printing by the central bank to enforce low rates.
The central bank has spent 136.5 million dollars intervening, but about 30 million dollars had also been purchased, he said.
The central bank would look at transactions in the market to understand the nature of deals, Governor Coomaraswamy said.
The central bank wanted to give more flexibility to the market, but participants have to respond accordingly, he said.
Long-time central bank watchers however have pointed out earlier that the central bank's trigger happy domestic operations department and its tendency terminate repo deals and inject money is at the heart of balance payments trouble in Sri Lanka.
Analysts also say banks that borrow from reverse repo auctions and windows and give credit with printed money create demand pressure.
Banks that give loans with window cash, or primary dealers who bid for securities auctions with window cash) may also put pressure on the currency by overtrading.
Governor Coomaraswamy says the central bank wants to look all aspects.
Latest data showed that private credit surged to 122 billion rupees in March, up form around 60 rupees billion a month earlier. If banks make loans with printed money the rupee will come under pressure. (Colombo/Mar11/2018)