Rupee edges up on exporter dollar sales, inward remittances

Wednesday, 31 August 2016 00:01 -     - {{hitsCtrl.values.hits}}

Reuters: The rupee ended slightly firmer on Tuesday ahead of a Central Bank policy meeting later in the day, as exporter dollar sales and inward remittances surpassed importer demand for the greenback, dealers said.

The Central Bank is expected to keep its key interest rates steady at the monetary policy rate meeting, after raising them by 50 basis points last month, a Reuters poll showed, amid signs of easing inflation and slower private sector credit growth.

The spot rupee ended at 145.55/60 per dollar, edging up from Monday’s close of 145.60/65, while one-week rupee forwards ended at 145.75/80, compared with the previous close of 145.75/85.

“There were exporter (dollar) sales and inward remittances as it’s the salary week. There was also not much of importer demand,” a dealer said, asking not to be named.

Another dealer said the market has priced in the Central Bank’s expected policy rate decision, which will be announced at 1230 GMT.

Dealers said the Central Bank was not seen intervening in the market. Officials from the Central Bank were not available to comment on whether it had stopped giving directions on the spot rate.

The spot rupee is usually managed by the central bank, and market participants use the forward market levels for guidance on the currency.

Dealers said importers are waiting for the rupee to settle amid upward pressure after Sri Lanka sealed its largest syndicated facility by increasing its three-year borrowing to $ 700 million from a targeted size of up to $ 500 million.

The Central Bank has largely not intervened to defend the rupee ever since a dual-tenure sovereign bond issue raised $ 1.5 billion in July.

Net foreign inflows into government securities jumped 31.4% to Rs. 302.4 billion ($ 2.08 billion) through 24 August since the International Monetary Fund approved a three-year, $ 1.5 billion loan on 4 June, according to the latest Central Bank data.

CB Chief sees credit growth slowing

Reuters: Private sector credit growth will decelerate to 18% at the end of 2016 from more than 28% as the central bank’s policy tightening measures begin to bite, Governor Indrajith Coomaraswamy said on Tuesday.

Private sector credit growth edged up to a four-year high of 28.2% in June, which the central bank attributed to “a high intake of credit to the industry and services sectors” as well as “substantial growth in personal loans and advances”.

Figures for July have not been officially released by the central bank, but Coomaraswamy said that reading would also be higher than 28%.

“Our expectation is by the end of the year, given current policies and if the government’s fiscal outcome stays pretty much on track, then hopefully private sector credit growth will come down to 18%,” he told reporters in Colombo.

Asked about plans to raise indirect taxes, Coomaraswamy said it reflected the government’s “very limited fiscal space” and that it wanted private investments to play a bigger role in the development process.

“You have to balance out whether this is the time to be increasing certain direct taxes which might disincentivise some of the investment,” he said.

The government faces difficulties in trying to achieve its ambitious revenue and budget deficit targets this year after two Supreme Court rulings halted value-added tax hikes.

Coomaraswamy, who took over at the central bank in July, said the government will not be undertaking any more foreign borrowing this year.

Sri Lanka raised $1.5 billion last month with a dual-tranche sovereign bond and foreign investors have been buying up the island nation’s government securities since it agreed a $1.5 billion loan with the International Monetary Fund in June.

Asked if the currency is under upward pressure, the central bank chief said he didn’t think capital inflows had been of sufficient magnitude to exert too much pressure on the rupee.

He also said growth could be closer to 5.5% this year if the existing macroeconomic background holds.

Sri Lanka’s $82 billion economy grew 4.8% last year.