Rupee steady in dull trade ahead of holidays

Reuters:  The Sri Lankan rupee ended steady on Monday amid lacklustre trading as many investors stayed away in a holiday-shortened week, currency dealers said.

The currency has been on a downward trend in the whole of 2015 and the fall has been steep since the Central Bank allowed free float of the currency on 4 September. Currency dealers expect the rupee to weaken further in 2016 due to lower reserves and higher imports.

The rupee closed at 143.65/90 per dollar, hardly changed from Friday’s close of 143.65/80. It hit a record low of 143.80 last week.

“There is hardly any trading happening because of the year-end season,” a currency dealer said, asking not to be named.

The markets will be closed on Thursday for a Buddhist religious holiday and Friday for Christmas.

The rupee has fallen 8.7 per cent so far this year. It has declined 6.2 per cent since the Central Bank floated it.

Dealers said the rupee will remain weak unless Sri Lanka tightens both monetary and fiscal policies due to its high dependency on imports, lower interest rates and lower foreign currency reserves.

Finance Minister Ravi Karunanayake told parliament last week that Sri Lanka’s reserves were at “a healthy” $6.1 billion. However, that figure is 26 per cent lower than the reserves at the end of 2014.

In a move to maintain higher reserves, Sri Lanka is planning to extend a $1.5 billion currency swap with the Reserve Bank of India (RBI) by one year.

The Central Bank sold dollars worth a net $1.1 billion in the three months to 30 November latest data showed. Dealers say part of that money went into defending the rupee, but Central Bank officials said it was to facilitate oil imports and foreign outflows from government securities.

Commercial banks parked 71.6 billion rupees ($498.95 million) of surplus liquidity on Monday using the Central Bank’s deposit facility at 6 per cent, official data showed.