Reuters - Sri Lankan shares fell for a second straight session on Tuesday to their near one-week closing low in thin trade after the central bank kept its key policy rates unchanged and as investors worried over volatile global markets and rising returns on risk-free assets.

Turnover slumped to 341.3 million rupees, the lowest since Dec. 31, and well below this year’s daily average of 791.7 million rupees.

The main stock index ended 0.5%, or 31.96 points, lower at 6,322.87, the lowest close since Jan. 20.

“There is nothing much happening. The market is lying on the back of retailers,” said Yohan Samarakkody, head of research, SC Securities (Pvt) Ltd.

“It’ll try to consolidate at these levels with the earning season to start. But the market cannot sustain unless proper measures are taken to draw more foreign investment.”

The index has fallen 8.3% so far this year as foreign investors, unnerved by global concerns over China’s economy, have cut their exposure.

Foreign investors, who have been net sellers of 2.28 billion rupees worth of equities so far this year, were net buyers of 3.79 million rupees worth of shares on Tuesday.

The central bank, as expected, kept its key policy interest rates unchanged after market hours on Monday, saying the effects of previous adjustments were still trickling down into the economy and expected private sector credit growth to decelerate slowly.

The yield on one-year t-bills rose 32 basis points to a more than two-year high of 7.80% at a weekly auction on Wednesday. Analysts expect market interest rates to rise in tandem.

Shares of conglomerate John Keells Holdings Plc dropped 2.1%, Ceylon Cold Stores Plc fell 3.65% and Distilleries Company of Sri Lanka Plc declined 2.10%.

Commercial Bank of Ceylon Plc, the country’s biggest listed lender, declined 0.47%.

Rupee steady after CB holds rate

Reuters: The Sri Lankan rupee ended steady on Tuesday, a day after the central bank kept its key policy rates unchanged and as dollar sales by a private bank helped offset demand for the greenback from importers, dealers said.

The private bank might have sold dollars on behalf of the central bank, some dealers said. Officials at the central bank were not available for comments.

The rupee ended flat at 144.00/20 per dollar.

“The demand (for dollars) is there and the pressure (to depreciate) is there. But the central bank is adopting various measures to control the rupee,” said a currency dealer, asking not to be named.

“Exporters are reluctant to sell greenbacks expecting further depreciation in the rupee,” the dealer said.

The central bank, as expected, kept its key policy interest rates unchanged after the market closed on Monday, saying the effects of previous adjustments are still trickling down into the economy and expected private sector credit growth to decelerate slowly.

Many dealers said a 150-basis-point increase in commercial banks’ statutory reserve ratio with effect from Jan. 16 had not eased the pressure on the currency as expected.

“Rate hikes may also be needed to support the currency, which has weakened significantly since the central bank was forced to abandon the rupee’s peg with the U.S. dollar in September,” Krystal Tan, Capital Economics’ Asia economist said in an investor note.

Commercial banks parked 56.14 billion rupees ($391.5 million) of surplus liquidity on Tuesday using the central bank’s deposit facility at 6%, official data showed.