May 3, 2018 / 11:08 AM / 19 days ago

INTERVIEW-Sri Lanka's rupee will stabilise, top official says

* Economic factors in favour of stable currency -cbank official

* Rupee hovering around record low

* Central bank intervenes to smoothen volatility

* Cenbank warns of tough actions against manipulations (Adds details, quotes)

By Shihar Aneez

COLOMBO, May 3 (Reuters) - Sri Lanka’s embattled rupee currency will stabilise and the central bank will intervene to smoothed high volatility as there is no reason for a weaker currency, the central bank’s senior deputy governor said on Thursday.

The rupee hit a record low of 157.90 per dollar on Wednesday. It reached all-time lows in five straight sessions last week.

“I don’t see any fundamental reason why the currency is so volatile within a very short period of time,” Nandalal Weerasinghe told Reuters in an interview. “It is too much volatility within too short a period.”

“All the fundamental economic factors are in favour of a stable currency. If there is too much volatility, we will intervene. There is no specific rate that we are intervening.”

The island nation’s foreign exchange reserves are at a record high $10 billion after a $2.5 billion inflow last month from sovereign bond sales.

The currency declined 0.9 percent against the dollar last week and around 3 percent this year. It shed 2.5 percent in 2017.

Weerasinghe said the central bank intervened on Tuesday and Wednesday in the absence of exporters’ dollar sales.

“If that is a manipulation, we will certainly take action against banks. We have given the market more flexibility. We have given the freedom. We are not intervening as much as we were intervening in the past,” he said.

“If anyone is trying manipulate with the freedom we have given them, obviously we can restrict their activities,” the deputy governor said. “We can bring back control as in the past. We can intervene, we can do moral suasion, and we can limit the net opening position.”

He also said the central bank can tolerate volatility unlike in the past.

The central bank has been buying dollars from the market to boost its reserves in line with a $1.5 billion International Monetary Fund (IMF) loan. Weerasinghe said the central bank expects to increase the reserves by $100 million each month.

The government has been converting expensive short-term loans to lower cost, longer tenure loans as it faces a debt crisis.

Currency dealers say they expect the rupee to gradually weaken and remain volatile this year due to debt repayments by the government.

It must repay an estimated 1.97 trillion rupees ($13 billion) in 2018 - a record high - including $2.9 billion of foreign loans and a total of $5.36 billion in interest. (Reporting by Shihar Aneez; Editing by Richard Borsuk)

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