Rupee falls on importer dollar demand, dollar strength

Reuters: The Sri Lankan rupee ended weaker yesterday as importer dollar demand surpassed greenback sales by banks and the US currency strengthened globally, dealers said.

The dollar traded higher against a basket of currencies amid fears of a potentially major escalation in the China-US trade conflict. The rupee hit a fresh low of 162.65 per dollar on 6 September, hurt by strong demand for the dollar from importers amid weakness in regional currencies, before the Central Bank cut the net open positions (NOP) of commercial banks, forcing banks to sell dollars.

Central Bank Senior Deputy Governor Nandalal Weerasinghe said on 7 September that the monetary authority had observed commercial banks were building up their positions without any fundamental reasons, which led to the cut in NOP.

The local currency, which hit a low of 162.42 in intraday trade on Friday, ended at 162.35/45 per dollar, compared with Friday’s close of 161.90/162.10.

Junior Finance Minister Eran Wickremaratne last week told Reuters that the Government would leave the rupee for market forces to decide.

The currency has weakened 0.56% so far this month after a 1.2% drop last month, and has declined 5.8% so far this year. It will be under depreciation pressure due to year-end seasonal importer dollar demand, dealers added.

The rupee is also hurt by weakness in the Indian rupee. India is Sri Lanka’s biggest trading partner and the Indian rupee, which also hit a record low yesterday, has been one of the worst performers in Asia this year.

Foreign investors sold Government securities worth a net Rs. 6.44 billion ($39.68 million) in the week ended 5 September, extending the net outflow so far this year to Rs. 53.3 billion worth of securities, Central Bank data showed.