Rupee forwards end lower on economic worries

Tuesday, 29 March 2016 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Rupee forwards fell for a fourth straight session on Monday due to dollar demand by importers and foreign investors selling bonds amid low liquidity in the greenback, dealers said.

The local currency is expected to remain under pressure due to growing economic uncertainty and rising debt levels, dealers said.

Finance Minister Ravi Karunanayaka said last week that Sri Lanka borrowed over 25% more last year than in 2014, blaming the high cost of refinancing loans he said were raised by the previous government without parliamentary approval.

One-week rupee forwards, which act as a proxy for the spot currency, ended at 148.10/30 per dollar after hitting a low of 148.30 per dollar during the day.

It ended at 147.70/90 on Thursday. Markets were closed on Friday for a public holiday.

“The demand was there from importers and bond sellers. But there is low dollar liquidity in the market as people who have dollars are converting the minimum required,” a currency dealer said asking not to be named.

Dealers said exporters converted dollars when the one-week forwards reached 148.30 levels.

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

Analysts said short-term borrowing has gone up and the debt roll-over cycle is getting shorter. Borrowings are expected to increase and that could raise dollar borrowing rates in future unless remittances and exports grow.

Recent outlook revision by S&P and sovereign ratings downgrade by Fitch, policy uncertainty and new taxes could discourage foreign investors.

Foreign investors sold Rs. 17.58 billion ($119.43 million) worth of government securities in the week ended 23 March, data from the Central Bank showed, taking the total offloaded since 30 December to Rs. 83.7 billion.

Commercial banks parked Rs. 17.341 billion of surplus liquidity on Monday, using the Central Bank’s deposit facility at 6.50 %, while they borrowed Rs. 19.125 billion using the Central Bank’s lending facility at 8.00 %, official data showed.

The Central Bank’s net holding of treasury bills increased by Rs. 4.862 billion, data showed.