Rupee slips on importer dollar demand

Colombo (Reuters): The Sri Lankan rupee ended slightly weaker in dull trade yesterday due to dollar demand from importers, while selling of the US currency by a state bank capped the fall.

The spot rupee, which traded at 157.95 per dollar intraday, ended at 157.85/95, compared with Friday’s (18 May) close of 157.60/90.

“It was a dull day. We saw a state bank selling dollars at 157.90,” a currency dealer said. “The rupee might come under pressure this week with low supply (of dollars) as tea exporters would stay away due to the rain.” Heavy monsoon rains have killed five people, prompting authorities to warn against landslides and floods in low-lying areas after spill gates had to be opened across the island.

The rupee hit a record low for a third straight session on 16 May and touched 158.50 per dollar after the Central Bank Chief said on 11 May that the currency would depreciate gradually as dollar outflows surpass inflows.

The currency has declined 0.06% so far this month after a 1.5% fall in April. It has fallen 2.8% this year.

The pressure on the currency is unwarranted as the gross external reserves are at $9.1 billion and the real effective exchange rate indexes indicate that the currency is competitive, the Central Bank said on 16 May. The Central Bank is “studying carefully” if there was extra pressure on the currency than what was expected, and also the behaviour of market participants, Central Bank Chief Indrajit Coomaraswamy had said on 11 May.

The Central Bank said on 26 April that it would intervene to support the rupee when necessary and there was no reason for the rupee to be under pressure given the country’s record $10 billion foreign currency reserves.

Dealers said they expect the rupee to gradually weaken and face higher volatility this year due to debt repayments by the Government.

Senior Central Bank Deputy Governor Nandalal Weerasinghe had said early this month that debt repayments by the Government will not have an impact on the currency as they are managed with borrowed money externally. Foreign investors sold Government securities worth a net Rs. 5.97 billion ($37.86 million) in the week ended 16 May, bringing the outflow so far this year to Rs. 15.8 billion, Central Bank data showed.