Rupee rises after IMF loan announcement

Reuters - Sentiment on the Sri Lankan rupee improved on Friday, as reflected in the forwards market, after the International Monetary Fund reached a staff-level agreement with the island nation for a $1.5 billion three-year loan.

Traders said banks sold dollars on expectation that the local currency will appreciate.

The spot rupee, which has barely seen any trading since 27 January, was not actively traded on Friday as well, but the movement in short-term dollar/rupee forwards indicated the rupee was being bid up.

Before the market opened, the IMF said it had reached a staff-level agreement with Sri Lankan authorities for a $1.5 billion, three-year loan to help the island nation avert a balance of payments crisis.

“Banks are selling dollars. With the IMF announcement, investors hope foreigners will buy more bonds and there are some remittance conversions expecting rupee to strengthen,” said a local bank currency dealer, requesting not to be named.

A dealer from a foreign bank said foreign investors have been buying government securities and more inflows are likely because offshore investors would be eager to buy more bonds after the IMF loan.

The rupee has been under pressure due to foreign investors selling government securities amid Sri Lanka’s economic woes, but they net bought bonds worth Rs. 11.7 billion ($79.92 million) in the four weeks to 20 April, central bank data showed.

However, they sold around Rs. 8 billion worth government securities in the week ended on April 27, latest data showed.

The spot next dollar/rupee forwards, which indicate prices for the rupee on the day following the conventional spot rate settlement, and in this case are six days ahead, were being quoted as a proxy for the spot currency and ended at 146.10/20 per dollar, compared with Thursday’s close of 146.50/70.

Dealers were also analysing the impact of Finance Minister Ravi Karunanayake’s move after he asked exporters last week to bring home their earnings, received on or after 1 April, to improve foreign exchange inflows.