Rupee forwards down for second day; further falls seen

Reuters: Rupee forwards slid for a second successive session on Wednesday due to importer dollar demand, while dealers expect the local currency to remain under pressure in the near term due to growing uncertainty after the announcement of new tax hikes.

One-week rupee forwards, which act as a proxy for the spot currency, ended at 146.40/50 per dollar, down from Monday’s close of 145.85/90. Markets were closed on Tuesday for a public holiday.

The spot did not trade below 143.90, seen as the Central Bank’s desired level.

Analysts said the rupee would face downward pressure until any positive news.

S&P revised its outlook on Sri Lanka’s “B-plus” sovereign credit rating to negative on 10 March, a week after Fitch downgraded its rating by a notch to “B-plus” with a negative outlook.

Dealers also said policy uncertainty is deepening with the new taxes, and the capital gains tax may discourage foreign investors.

Sri Lanka will raise Value Added Tax (VAT) and reintroduce Capital Gains Tax to break out of a debt trap, ahead of talks on a $1.5-billion loan it is seeking from the IMF.

The downgrade will be of concern to international investors and market players, said analysts, adding it would push up the cost of government borrowings in the international market, putting pressure on the rupee.

Foreign investors sold Rs. 9.59 billion ($66.3 million) worth of Government securities in the week ended 16 March, data from the Central Bank showed, taking the total offloaded since 30 December to Rs. 66.1 billion.

Commercial banks parked Rs. 12.85 billion of surplus liquidity on Monday, using the Central Bank’s deposit facility at 6.50%, official data showed.