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Sri Lanka rupee drops below 300 as central bank eases dollar buying -analysts

Sri Lanka’s rupee dropped below 300 against the U.S. dollar for the first time in over a year as the crisis-hit country’s central bank limited its dollar purchases, analysts said on Thursday.

The Central Bank of Sri Lanka (CBSL) set the rupee’s buying rate at 299.21 and selling rate at 312.37 with the indicative rate at 301.36, its website showed, the lowest since last April.

The Sri Lankan rupee has appreciated by about 15% this year as CBSL gradually allowed for a flexible exchange rate from mid-March as part of efforts to lock down a $2.9 billion bailout from the International Monetary Fund (IMF) as it navigates its way out of the worst financial crisis in over seven decades.

However, the CBSL has been mopping up excess liqudity by purchasing about $200 million each month, a practice it may have stepped back from in the past few days allowing for the rupee to appreciate against the dollar, four analysts told Reuters.

“The central bank may be looking to settle the currency at about 300 and then return to the market because they have to purchase dollars to prop up reserves,” said Udeeshan Jonas chief strategist at equity research firm CAL Group, Colombo.

The CBSL did not immediately respond to a request for comment.

The IMF has set Sri Lanka a foreign exchange reserve target of $4.2 billion by the year end. The country’s current reserves are at $2.7 billion, according to latest central bank data.

Cheaper dollars could also help bring down inflation by encouraging imports of essentials such as food, analysts said. Sri Lanka’s inflation, which hit record highs of 69% last September, eased to 35.3% in April. (Reuters)

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