Rupee falls on importer dollar demand; violence weighs

Reuters: The Sri Lankan rupee ended weaker on Wednesday as importers bought dollars on fears that the local currency could depreciate further if communal violence in the central district of Kandy spreads to other areas, dealers said.

Buddhist mobs attacked mosques and businesses belonging to the minority Muslims overnight, police said on Wednesday, despite the imposition of a state of emergency to restore peace in the bitterly divided island.

Police imposed an indefinite curfew in Kandy where the violence has been centred since Sunday night following the death of a Buddhist youth in an altercation with a group of Muslims.

The rupee closed at 155.35/40 per dollar, compared with Tuesday’s close of 155.05/15. It hit a record low of 155.90 per dollar on 14 Feb.

“Exporters are on a wait-and-see approach, while importers bought higher amount of dollars. We expect the rupee to fall further because many importers are buying dollars expecting the spreading of violence could further weigh on the (local) currency,” said a dealer.

The rupee has weakened 1.24% so far this year, after declining 2.5% last year and 3.9% in 2016.

It is expected to be pressured by continued importer demand for dollars ahead of the traditional New Year in April, dealers said.

A gradual depreciation in the rupee and higher volatility this year are expected on account of debt repayments by the government, dealers added.

The government must repay an estimated 1.97 trillion rupees ($12.68 billion) in 2018 – a record high – including $2.9 billion of foreign loans and a total of $5.36 billion in interest.

Foreign investors sold government securities worth a net 3.2 billion rupees in the week ended 28 Feb, central bank data showed.