Rupee ends slightly weaker on importer dollar demand

Reuters: The rupee ended marginally weaker in thin trade on Monday, as importer dollar demand surpassed greenback remittances, dealers said.

Rupee forwards were active, with two-week forwards ending at 151.85/95 per dollar, compared with Friday’s close of 151.80/90.

“The importer demand was largely taken care by remittances in thin trade today,” said a currency dealer on condition of anonymity.

“If we don’t get to see steady inflows, the rupee will be under pressure due to seasonal import demand and drought.”

Dealers said the rupee would be under pressure due to dollar demand from importers ahead of the traditional Sinhala-Tamil New Year in mid-April, and as foreign investors continue to sell government securities.

Ratings agency Moody’s said in a report last week that lower agricultural exports and higher imports to make up for the loss in domestic production would weigh on the current account deficit and foreign exchange reserves.

The Government’s handouts to farming families affected by drought could make the fiscal deficit target a challenge, Moody’s added.

Lower agricultural output due to the drought will force the Government to increase imports, dealers said. For further imports, the government needs more US currency while there will be fewer dollars coming in from agriculture commodity exports. Both will increase the demand for the greenback and put pressure on the rupee.

Finance Minister Ravi Karunanayake said on Friday the worst drought to hit Sri Lanka in 40 years may cost the Government up to Rs. 40 billion ($ 264.7 million), but should not worsen the fiscal deficit. Foreign investors bought a net Rs. 701 million ($ 4.64 million) worth of government securities in the week ended 1 March, recording the first weekly net inflow for the year. They have sold a net Rs. 63.76 billion such instruments so far this year.

Sri Lanka could face balance-of-payments pressure due to foreign outflows from government securities, a government document showed last month, even as the island nation was in the process of raising up to $ 2.5 billion from foreign borrowing.

The rupee has weakened around 1% so far this year. It fell 3.9% last year, following a 10% drop in 2015.