Rupee ends steady; bond flow direction eyed

Reuters: The rupee ended steady in thin trade on Tuesday as mild importer dollar demand offset sales of the greenback by exporters while traders awaited cues on foreign selling in bonds, dealers said.

Rupee forwards were active, with two-week forwards ending at 151.85/95 per dollar, unchanged from Monday’s close.

“There was no big demand. Everybody is on the watch. They are waiting to see the direction, whether there’ll be more bond sales by foreigners,” said a currency dealer on condition of anonymity.

“I don’t know if this is a calm before the storm.”

The International Monetary Fund, during the latter part of the trading session, urged the Central Bank to allow flexible exchange rates and stand ready to tighten monetary policy after the island nation missed the net international reserves target in it $ 1.5 billion loan program.

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, the rating agency 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.

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 of 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 1.07% so far this year. It fell 3.9% last year, following a 10% drop in 2015.

Stock market eases; interest rate concerns weigh

Reuters: Shares ended slightly weaker on Tuesday, with financial and manufacturing stocks dragging down the index as investor sentiment continued to remain low on concerns about rising interest rates.

The Colombo stock index ended down 0.15% at 6,108.11. On Friday the Bourse hit its lowest close since 9 February. It shed 0.6% last week in its second straight weekly decline.

Foreign investors were net buyers of shares worth Rs. 379.6 million ($ 2.51 million) on Tuesday, extending the year-to-date net foreign inflow to Rs. 1.73 billion worth of equities.

Turnover was Rs. 539 million, less than this year’s daily average of Rs. 676.9 million.

“Retail and institutional segment is on silent (mode) with the high interest rates and economic uncertainty,” said Dimantha Mathew, head of research, First Capital Equities Ltd.

The International Monetary Fund on Tuesday urged Sri Lanka’s central bank to rebuild international reserves, while maintaining exchange rate flexibility, and to be ready to tighten monetary policy if credit growth or inflation do not abate.

Shares in Ceylon Cold Stores Plc fell 2.51% while Commercial Leasing & Finance Plc lost 6.67%.

Yields on treasury bills have risen to a more-than-four-year high since October, while the Central Bank has kept key policy rates on hold.