Rupee forwards edge down on importer dollar demand

Reuters: Rupee forwards closed marginally lower on Wednesday on importer dollar demand, but the fall was capped due to moral suasion by the Central Bank, dealers said.

The local currency could weaken further if the Government increases spending to deal with the country’s worst natural disaster since 2004, they added.

The cost of landslides and floods, caused by days of torrential rain, will be between $1.5 billion and $2 billion at the minimum, the Government said last week.

Dollar/rupee forwards, known as spot next, ended at 148.25/40 per dollar, a tad weaker than Tuesday’s close of 148.20/30.

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Spot next, which acts as a proxy for the spot currency, indicates the exchange rate for the day following conventional spot settlement, which is five days ahead for Wednesday’s trade.

“The demand (for dollar) was there, the spot next traded in between 148.25 and 148.35,” a currency dealer said.

Central Bank officials were not available for comment.

Two State-run banks, through which the Central Bank usually directs the market, at times sell dollars to curb falls in the rupee.

There was little impact on the rupee from Finance Minister Ravi Karunanayake’s announcement on Tuesday that Japan would lend $4.2 billion to Sri Lanka through both a loan and bond financing for budgetary support in the next two years.

The spot currency was not traded on Wednesday.

The spot rupee reference rate has been pegged at 145.75, dealers said. The Central Bank had fixed the spot rate at 143.90 per dollar until May 2.

Dealers said the rupee would continue to face pressure despite foreign inflows into Government securities and expectations of further inflows, unless the inflows are large enough to boost reserves.

Foreign investors were net buyers of Rs. 7.23 billion ($49.28 million) in the week ended 25 May, Central Bank data showed.

The Government is in the process of borrowing up to $3.5 billion from foreign sources via syndicated loans, sovereign bonds, and Islamic bonds, Karunanayake said last week.

Analysts said foreign inflows from such loans or bond issues would ease the pressure on the rupee.