Rupee down on importer dollar demand; more downward pressure seen
Wednesday, 12 February 2014 00:00
REUTERS: The Sri Lanka rupee ended weaker on Tuesday due to importer dollar demand despite dollar selling by a state-run bank, and dealers said downward pressure would remain throughout the year if the US Federal Reserve continues to wind down stimulus.
The spot rupee ended at Rs. 130.82/85, weaker than its Monday’s close of Rs. 130.75/80. Dealers said one of the two state banks, through which the Central Bank directs the market, sold dollars at Rs. 130.85 to prevent volatility.
“I think the central bank will hold the rupee at these levels until April and then assess the situation according to inflows,” a currency dealer said on condition of anonymity.
“But if the US Treasury yields are going to rise to 3.5% in the second half in the event of continuous tapering, then foreign investors in government securities would also might leave and that could put more pressure on the rupee.”
The Fed’s January decision to cut its monthly bond-buying program has largely not affected Sri Lanka so far, though some foreign funds have sold a net Rs. 4.6 billion ($ 35.18 million) in stocks in the four sessions through Tuesday.
However, foreign investors bought Rs. 15.57 billion ($ 119.1 million) in the week ended 5 February in government securities, the Central Bank’s latest data showed.
Dealers expect the central bank to keep the currency below Rs. 130.85 per dollar until April. Usually, the rupee is under downward pressure in March and early April due to seasonal imports ahead of traditional new year in mid-April.
Five dealers Reuters spoke to said the market is yet to see the impact of inflows from the Rs. 15.57 billion foreign buying in government securities as reported by the Central Bank last week.
Central Bank Governor Ajith Nivard Cabraal on 27 January said Sri Lanka should not experience any major capital outflows or market volatility due to the Fed stimulus cut.
The rupee has gained about 3.3% since it hit a record low of Rs. 135.20 on 28 August. It lost 2.5% in 2013.