Rupee edges down on mild importer dollar demand

Colombo (Reuters): The rupee ended slightly weaker on Tuesday due to mild dollar demand from importers, and pressure on the local currency was expected to ease a bit due to lower imports until September, dealers said.

Rupee forwards were active, with spot-next forwards ending at 152.88/93 per dollar, compared with Monday’s close of 152.85/95.

“Some banks bought dollars in smaller quantity. We do not see much importer demand until September. We also see state banks buying dollars when they trade around 152.80/85,” a currency dealer said, asking not to be named.

“We don’t know if state banks are buying for the Central Bank.”

The rupee has been under pressure after the central bank governor last month said the bank would allow gradual depreciation of the currency.

 The Central Bank has set a target of $ 1.2 billion in direct market purchases of dollars to boost the island nation’s reserves this year.

The spot rupee, which the central bank had fixed at 152.50 since 5 May, did not trade on Tuesday.

Foreign investors bought a net Rs. 740 million ($ 4.86 million) worth of government securities in the week ended 31 May. They have sold a net Rs. 41.33 billion worth of securities so far this year.

The dull trade came as investors assessed the extent of damage to the economy from the recent floods and landslides. The country’s main agricultural crops - tea and rubber - were hit by the worst torrential rains in 14 years.

Damage to agricultural exports would put pressure on the rupee, currency dealers said. 

The hospitality and manufacturing sectors are likely to be the worst hit, analysts said.

However, dealers said there was some optimism over expected inflows in the form of international assistance, which could help offset potential downward pressure on the local currency.

Dealers said the aid inflows could help the rupee, but the central bank will have to tighten interest rates to curb unnecessary credit growth and inflationary pressure.

The floods could hurt overall economic growth and also widen the Government’s budget deficit with high infrastructure spending, dealers said.