Rupee firms up

Friday, 18 May 2018 00:00 - - {{hitsCtrl.values.hits}}

Reuters: The Sri Lankan rupee ended firmer yesterday in dull trade due to dollar-selling by a state bank, a day after the Central Bank said underlying fundamentals do not warrant the current downward pressure on the currency.

The rupee hit a record low for a third straight session on Wednesday (17 May) at 158.50 per dollar after the Central Bank Chief said on 11 May that the currency would depreciate gradually as dollar outflows surpass inflows.

The spot rupee closed at 157.65/95 per dollar, compared with Wednesday’s close of 158.00/30.

“Today, there was not much of pressure as we have not seen importers. A state bank sold dollars and we don’t know whether it’s their flows or intervention,” a currency dealer said yesterday.

The currency has declined 0.06% so far this month after a 1.5% fall in April. It has fallen 2.8% this year.

The pressure on the currency is unwarranted as the gross external reserves are presently at $9.1 billion and the real effective exchange rate indexes indicate that the currency is competitive, the Central Bank said on Wednesday.

The Central Bank is “studying carefully” if there was extra pressure on the currency than what was expected, and also the behaviour of market participants, Central Bank Chief Indrajit Coomarswamy had said on 11 May.

The Central Bank said on 26 April it would intervene to support the rupee when necessary and there was no reason for the rupee to be under pressure given the country’s record $10 billion foreign currency reserves.

Dealers said they expect the rupee to gradually weaken and face higher volatility this year due to debt repayments by the Government.

Senior Central Bank Deputy Governor Nandalal Weerasinghe had said last week debt repayments by the Government will not have an impact on the currency as they are managed with borrowed money externally.

Foreign investors sold Government securities worth a net Rs. 4.05 billion ($25.63 million) in the week ended 9 May, bringing the outflow so far this year to Rs. 9.8 billion, Central Bank data showed.