Chinese cash calms down dollar-rupee volatility

While the US dollar was mixed this week in Colombo’s money markets with the currency gaining slightly against the Sri Lanka rupee on Friday, sizable inflows from overseas Chinese companies are helping calm the dollar-rupee volatility.

The dollar which traded at 154.77 rupees (per 1 dollar) earlier in the week was seen trading at an average of 155 rupees on Friday due to demand from a few smaller banks, dealers said.

They also explained that while worker remittances from West Asia were reducing particularly from Qatar, this is to some extent offset by Chinese remittances for local projects including wages to Chinese workers. An average US$ 5 million per month has come to the market through these sources over the past several months.

Remittances from Sri Lankan workers in South Korea are also helping to maintain some equilibrium in the market as the yields (amounts sent) are high compared to those from West Asia.

While the Central Bank ( CB) reserves are reportedly at a comfortable $ 7 billion, this money doesn’t come to the money market. Even the recent payments from the Hambantota Port lease deal went into a designated CB account and are not used by the banking regulator even if the rupee depreciates to worrying levels, as seen recently following the reversal of fortunes to the governing parties at recent elections.

The Central Bank has, as per policy, stopped intervening in the market since January 2017. A sharp depreciation in the rupee two weeks back mainly because exporters were holding onto their earnings and importers were “booking’ dollars appears to have calmed down, dealers said.

“We don’ t see import demand ( now). That would come in later this month which is seasonal due to the April New Year buying period,” one dealer added.