5-day rupee forwards end weaker

Reuters: Five-day rupee forwards edged down on Tuesday due to importer dollar demand ahead of holidays later this week, dealers said, even as the Central Bank Chief said the currency was settling down after a period of high volatility.

The forwards, known as spot next and which act as a proxy for the spot currency, ended at 145.35/60 per dollar, weaker from Monday’s close of 145.05/145.20.

Dealers said trading was dull ahead of the Sinhala-Tamil New Year holidays on Wednesday and Thursday.

The spot rupee, which has seen little trading since 27 January, was not actively traded on Tuesday as well.

The Central Bank has fixed the spot rupee’s trading price at 143.90 through moral suasion, dealers said.

Central Bank Governor Arjuna Mahendran said the rupee was gradually settling down, with less intervention seen by the banking regulator than in the past.

“You have a gang of operators in this market who try to push the Central Bank time to time and then we have to push them back and see that they don’t speculate excessively and throw the entire economy out of kilter,” he told reporters in Colombo.

“If we have the exchange rate doing 150 or 160, it was not justifiable in terms of fundamentals. If you look at our real effective exchange rate and interest rates, Rs. 150  was simply not on the cards. I think it is settling down.”

He said the Central Bank now “has set a rate in the market” which the monetary authority thinks is reasonable.

“I think other market operators are also falling in line. We intervene officially. Hopefully we intervene less and less going forward and we hope a proper liquid market will evolve. Right now, it is still an illiquid market.”

The rupee has been under pressure due to foreign investors exiting Government securities and amid the country’s economic woes.

Dealers however say an anticipated IMF loan, a tax hike, and less borrowing will help stabilise the currency.

Sri Lanka will stop excess Government borrowing in a bid to get out of a debt trap and it hopes for cheaper loans after a deal with the IMF is finalised, Mahendran said on Tuesday.