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Reuters: The Sri Lankan rupee closed weaker on Wednesday (4 April), for a second straight session, as bank dollar buying to facilitate equity related outflows surpassed exporter dollar sales and inward remittances, dealers said.
Yields in short-term government securities fell after the Central Bank cut its key lending rate by 25 basis points in a surprise move before the market opened on Wednesday (4 April).
However, in an auction of 364-day Treasury bills, the yield shot up 22 basis points.
The Central Bank cut the rate as policymakers sought to revitalise an economy growing at its weakest pace in 16 years and facing heightened political uncertainty.
The rupee, which traded at 156.15 per dollar earlier in the session, closed at 155.80/95 per dollar, compared with Tuesday’s close of 155.75/85.
The rupee gained 0.4% last week.
“There was continued (dollar) demand from a foreign bank to settle a share transaction. There were some inward remittances but the dollar demand was high,” said a currency dealer.
The Central Bank governor, after the policy rate announcement, said if the inflation rate can be maintained between 4-5%, the depreciation in the rupee would be around 2-3%.
On Wednesday (March 28), the Sri Lankan stock market saw the highest net outflow in the last nine years for which data is available as LOLC Holdings Ltd bought a near 30% stake in its subsidiary, Lanka Orix Leasing Company PLC, from Japan’s ORIX Corp.
Dealers expect pressure on the currency to ease with more inward remittances ahead of the traditional New Year in mid-April.
The currency has recovered and risen 0.2% since it hit a record low of 156.20 per dollar on March 16. The rupee has weakened 1.7% so far this year after declining 2.5% last year and 3.9% in 2016.
A gradual depreciation in the rupee and higher volatility are expected this year on account of debt repayments by the government, dealers have said.
The International Monetary Fund said on March 9 that Sri Lanka’s economy remained vulnerable to adverse shocks due to its large public debt and low external buffers.
The government must repay an estimated Rs. 1.97 trillion ($12.68 billion) in 2018 - a record - including $2.9 billion of foreign loans, and a total of $5.36 billion in interest.
Foreign investors sold government securities worth a net Rs. 211.7 million ($1.36 million) by Saturday (March 21), Central Bank data showed.