Rupee ends weaker; bond sale may ease downward drift

Reuters: The rupee ended weaker on Wednesday due to importer dollar demand, dealers said, but the market expected pressure on the currency to ease after the Government raised nearly $ 1 billion via a bond auction.

The Central Bank said after market hours on Tuesday that it had on behalf of the Government raised a record $ 973.25 million through a Sri Lanka Development Bond auction and the inflows were expected on Friday.

Rupee forwards were active, with two-week forwards closing at 152.90/153.10 per dollar, weaker from Tuesday’s close of 152.50/75. One-month forwards ended at 153.75/154.00 per dollar compared with Tuesday’s close of 153.20/40.

“The demand (for dollar) was there. But more than that, there are no sales in the market,” a currency dealer said, asking not to be named.

On Tuesday, the Central Bank reversed a transaction on the two-week rupee forwards that exceeded 152.60 per dollar, dealers said, amid demand for the greenback from importers and for dividend payments.

Central Bank officials were not available for comment.

The Central Bank is struggling to maintain a flexible exchange rate in the face of heavy foreign outflows from government securities. The rupee has depreciated 1.1% so far this year, having lost 3.9% of its value against the dollar last year. The country missed the end-December net internal reserves target set by the International Monetary Fund for a $ 1.5 billion loan approved last year and since then the Central Bank has been hardly selling dollars to defend the currency, dealers said.

Last week, the IMF urged the Central Bank to rebuild foreign reserves while maintaining exchange rate flexibility.

Dealers expect the rupee to depreciate between 6% and 8% this year.

Foreign investors bought a net Rs. 1.87 billion ($ 12.4 million) worth of government securities in the week ended 8 March, recording the second weekly net inflow for the year. They have sold a net Rs. 61.89 billion of such instruments so far this year.