Rupee falls for 5th session

Reuters: The rupee fell for a fifth straight session yesterday on importer dollar demand, and dealers said they expected the local currency to decline further.

The rupee closed at 159.20/35 per dollar, compared with Thursday’s close of 158.90/159.10 per dollar. It has declined 3.7% so far this year.

Meanwhile, the Central Bank left its key policy rates unchanged as expected, saying a low rates environment and stabilising inflation would support its economy in the face of a fragile currency.

“Much of this depreciation was recorded since late April, reflecting the broad-based strengthening of the dollar in the international market,” the Central Bank said in its monetary policy review statement.

“The Central Bank intervened in the domestic foreign exchange market to address speculative behaviour and the unwarranted volatility in the exchange rate.”

Central Bank Governor Indrajit Coomaraswamy said the depreciation was mainly driven by external factors and that emerging-market currencies were under pressure.

The International Monetary Fund (IMF) said last month that Sri Lanka’s economy remains vulnerable to adverse shocks because of sizable public debt and large refinancing needs.

Currency dealers, however, said the currency was weakening gradually after a brief recovery last week.

Dealers said the downward pressure seen on emerging-market currencies was due to the hike in US rates, the trade war between China and the United States, and the rise in oil prices. The spot rupee hit an all-time low of 160.17 per dollar on 20 June.

A strengthening dollar since mid-April has increased the credit risk of several emerging markets, including Sri Lanka, due to currency depreciation, ratings agency Moody’s said late last month.

A strong dollar would also lead to a drop in foreign exchange reserves of countries such as Argentina, Ghana, Mongolia, Pakistan, Sri Lanka, Turkey and Zambia, Moody’s said.

Foreign investors sold government securities worth a net Rs. 674 million ($4.24 million) in the week ended 4 July, bringing the outflows so far this year to Rs. 29.6 billion, Central Bank data showed.