Rupee ends steady, but market sees further dip

Reuters: Sri Lanka’s rupee ended steady on Wednesday as importer dollar demand was offset by foreign inflows into the island nation’s bonds, but currency dealers and traders said further depreciation pressure is imminent in May when the central bank changes policy on oil import payments.

The rupee ended almost flat at 128.60/70 compared with Tuesday’s close of 128.55/70 against the dollar.

Currency dealers said a foreign bank sold dollars received from bond sales to offshore investors, but considerable importer demand capped any rupee gain.

“We expect further depreciation pressure in the currency as the oil bills also will be financed through the available dollars in the market,” a currency dealer said on condition of anonymity.

The central bank, which is building up its depleted reserves, has said it may stop supplying dollars to pay for oil imports from May, its latest move to allow more rupee flexibility after it refrained from intervening in foreign exchange markets in February.

The state-run oil firm Ceylon Petroleum Company needs $10-$12 million a day to meet payments for imported oil.

The currency has depreciated 11.1 per cent since the central bank stopped defending it on 9 February.

Uncertainty in the rupee coupled with rise in T-bill rates pulled back the island nation’s stock market to end 0.1 per cent weaker.

Yields in all three t-bills rose between 11-27 basis points at a weekly auction on Wednesday, which analysts and stockbrokers said may prompt equity investors to shift to fixed-income instruments.

The day’s turnover was Rs. 249.9 million ($1.94 million), well below this year’s daily average of Rs. 1.32 billion.

The market saw a net foreign inflow of Rs. 33.5 million, extending the net foreign buying to Rs. 21.2 billion so far in 2012.

The Colombo bourse is one of the worst performing Asian markets this year, losing 11 per cent as investors have been deterred by rising interest rates and uncertain currency movements.