(Adds details, comments & context on rupee policy)
COLOMBO May 9 Sri Lanka's central bank does not
want to allow the rupee to fall too quickly, Governor Indrajit
Coomaraswamy said on Tuesday, but suggested further weakness in
the exchange rate is on the cards as policy makers sought a
U.S. dollar inflows have helped the rupee stabilise after a
sharp fall of around 14 percent in the last two years. The
central bank, however, has been adjusting the spot rupee
reference rate down, and the currency has fallen 1.7 percent so
far this year.
"The key thing is to have a competitive exchange rate...We
don't want to let it fall too quickly," Coomaraswamy told
reporters in Colombo after the central bank held policy rates
steady earlier in the day.
The central bank has allowed the currency to gradually
depreciate since mid-December, revising its spot reference rate
down multiple times as it sought to boost export competitiveness
and spur a sluggish economy. It has said that defending the
currency with foreign exchange reserves did not "seem sensible".
The rupee has been hit hard by outflow of foreign funds
since the U.S. Federal Reserve started tightening rates as well
as from twin balance-of-payments and debt crises.
Coomaraswamy said proceeds from Friday's $1.5 billion
sovereign bond is expected by end-week, while another $450
million syndicated loan, which is "almost decided", is expected
The spot rupee, which hasn't traded for four months
due to indirect central bank intervention, resumed spot deals on
Friday. It was not active on Tuesday. The central bank adjusted
the spot reference rate to 152.10 from 151.90 last week.
Coomaraswamy said the central bank wants to reduce the gap
between the spot and forwards by adjusting the spot reference
rate downward, meaning there is more room for the rupee to
"That shows where the rates should be. So we are going to
gradually let the reference rate go a little bit," he said.
"We are trying to see whether we can compress that (gap) and
let the reference rate move in the direction of what seems to be
the market rate."
The central bank has targeted to boost foreign exchange
reserves to $7.2 billion by the end of this year, up from the
current $5 billion, through foreign borrowings and divestment of
some state assets.
Coomaraswamy said the extra reserves could bolster its
intervention firepower in the event of disorderly market moves.
(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Shri