Rupee edges up on exporter dollar sales; dealers expect fall

Tuesday, 4 February 2014 00:01 -     - {{hitsCtrl.values.hits}}

  • Bourse slips on profit-taking; Keells leads fall; Foreign investors net buyers of Rs. 290.3 m
Reuters: The rupee closed slightly firmer on Monday, stiffened by inward remittances and exporter dollar sales, but dealers expect the local currency to depreciate on lower interest rates that could drive credit growth and imports. The spot rupee ended at 130.64/67 per dollar, firmer from Friday’s close of 130.72/75. “There were inward remittances and export conversions. With lack of importer demand the rupee ended firmer,” said a currency dealer who asked not to be identified. “But the market expects the currency to depreciate in the near future because of rising credit demand in a low interest rate regime. The Fed decision and this weekend’s US statement on bringing in another UN resolution against Sri Lanka will aggravate the depreciation.” Dealers said the market was concerned about a possible gradual pull-out of foreign investors from government securities, resulting in depreciation of the currency. Central Bank Governor Ajith Nivard Cabraal last week said Sri Lanka should not experience any major capital outflows or market volatility due to the Fed’s stimulus cut. Foreign holdings in Government securities fell 0.2% to 481.89 billion rupees ($3.69 billion) in the week ended 29 January, the latest Central Bank data showed. Dealers also said a renewed move by the United States to bring a resolution against Sri Lanka at a UN Human Rights Council meeting in March could also hit investor confidence. A State Department official said at the weekend the United States would table a UN human rights resolution against Sri Lanka, putting new pressure on Colombo to address war crimes claims, but the Government rejected US criticism of its human rights record as “grossly disproportionate”. The rupee has gained about 3.5% since it hit a record low of 135.20 on 28 August. It lost 2.5% in 2013. Stock and currency markets will be closed on Tuesday to mark the country’s Independence Day and normal trade resumes on Wednesday. Meanwhile shares slipped to a near-one-week low on Monday due to profit-taking led by top conglomerate John Keells Holdings despite foreign buying ahead of a holiday. Stockbrokers, however, expect the Bourse to gain in the near future due to lower interest rates. The main stock index fell 0.46%, or 28.74 points, to 6,219.34, its lowest level since 28 January. “We expect the market to rise in the near future due to the simple reason that our interest rates are low. Keeping the funds at normal saving will be a loss for value for their money,” a stockbroker said on condition of anonymity. Stockbrokers said retail and institutional investors were active in the market after interest rates on treasury bills eased at a weekly auction on Wednesday to multi-year lows, making fixed-income assets unattractive. The stock and currency markets will be closed on Tuesday for a holiday for the island nation’s 66th Independence Day. Trading will resume on Wednesday. Shares in Conglomerate John Keells Holdings PLC fell 2.08% to Rs. 235. Stockbrokers said investors will shrug off political risks from renewed pressure by the US to bring a fresh resolution against Sri Lanka at a UN Human Rights Council meeting in March, because the market had been expecting the worst. “Based on the US Embassy’s communiqué, we don’t expect any economic or trade embargoes against Sri Lanka in the forthcoming UNHRC session,” Danushka Samarasinghe, Head of TKS Securities Research, told Reuters. “Therefore it is unlikely that any adverse impact would result for the market following the UN session and sometimes the market could get stronger since much more adverse measures were expected.” Foreign investors were net buyers of Rs. 290.3 million ($ 2.22 million) worth of shares on Monday, extending the year-to-date net foreign inflow to Rs. 1.32 billion. They bought Rs. 22.88 billion worth of stocks last year. The index, which was in an overbought region since 7 January, touched the neutral region on Monday, Thomson Reuters data showed. It has risen 5.18% so far this year, following a 4.8% gain in 2013, after having fallen in the previous two years. The day’s turnover was Rs. 1.1 billion, more than last year’s daily average of about Rs. 828.4 million.