Rupee on a yo-yo!

• Rupee recovers on CB intervention of $ 5 m
• Depreciation fears remain; markets shrugs off bank comments
• CB prevents further rupee fall by moral suasion
• Bourse slips for the fourth straight session

Reuters: The rupee fell 1.05 per cent to a record low of 133.50 to the dollar on Wednesday on importer demand for the US currency because of concern the rupee will weaken further if the Central Bank stops supplying dollars for oil bills.

But the rupee ended at 131.65/132.00 against the dollar, firmer than Tuesday’s close of 132.00/20 after the Central Bank intervened via moral suasion and selling $ 5 million dollars, dealers said.

At least three dealers Reuters spoke to said the lowest intraday trade was done at 133.50.

“There was heavy selling by a state bank and heavy moral suasion by the Central Bank,” said one of the currency dealers, who declined to be identified.

The Central Bank told Reuters on Wednesday it may defer plans to stop supplying dollars for oil-import bills and vowed to act against currency speculation after depreciation fears pulled the rupee to an all-time low for a second day.

Trading for oil imports accounts for about $ 15 million of daily volume in Sri Lanka’s foreign exchange market, where the total daily average volume varies between $ 60 million and $ 100 million, according to Central Bank officials.

The Central Bank now partially meets dollar requirements to pay oil bills, but if it stops next month, that would force the State-owned Ceylon Petroleum Corporation to buy dollars from the currency market, adding to the pressure on the rupee.

The Central Bank on Tuesday warned against currency speculation, saying the depreciation was unwarranted, but demand from importers still drags the rupee lower, say traders.

Monetary authorities said on Friday they expected inflows of $ 574 million over the next month but the market shrugged that off amid concern the inflow would not support the rupee with the Central Bank buying dollars.

The rupee has depreciated 13.3 per cent since the Central Bank stopped intervening to defend a specific price on 9 February and 16.3 per cent from 21 November, when the Government allowed a three per cent devaluation.

Sri Lanka’s stock market fell 0.03 per cent, or 1.52 points to 5,440.01 in thin trade. It was the fourth fall in a row amid uncertainty over the rupee’s depreciation, rising interest rates and slowing economic growth.

The day’s turnover was Rs. 312 million ($ 2.36 million), well below this year’s daily average of Rs. 1.2 billion.

The market saw a foreign outflow of Rs. 19.8 million, but this year, foreign investors have been net buyers of Rs. 21.3 billion.

The Colombo Bourse is one of the worst performing Asian markets this year, losing 10.4 per cent.