Friday, 28 June 2013 09:41
-
- {{hitsCtrl.values.hits}}
Rupee down 0.94% on the day; depreciation pressure remains
CB intervenes in
Shares up, but bourse sees foreign outflows for third straight day forex market to smoothen volatility
Reuters: The Central Bank sold dollars in the foreign exchange market to stabilise a sliding rupee on Thursday as foreign investors continued to pull out of treasury bonds after the US Federal Reserve last week confirmed plans to trim its stimulus.
The rupee fell 1.05% on Thursday to hit 130.90, its lowest since 8 November, from Wednesday’s close of 129.50/55, weighed down by dollar demand from foreign investors who have been selling T-bonds in the secondary market, currency dealers said.
It closed at 130.70/80, falling 0.94% on the day.
Dollar assets have become a big lure for investors as the Fed prepares to dial down its massive bond-buying program, which has triggered a huge selloff in emerging market bonds and currencies in the past week.
However, the rupee recovered to 130.40 as one of the two state-run banks, through which the central bank usually directs the market, sold dollars at 130.40, three currency dealers said.
“We intervened in the market to a certain extent,” Nandalal Weerasinghe, the Central Bank’s Deputy Governor, told Reuters.
“Apparently, we see demand coming from small bond and equity-related selling. We absorbed 100% of the bond inflows. So we have some responsibility to smoothen the market when they are selling, in a way to stabilise the market.
We have the space to supply dollars. The bond sales were around $ 2-$3 million.”
Currency dealers said the absence of exporter selling aggravated the shortage of dollars amid importer panic buying seen on forwards.
“Until emerging markets stabilise, the depreciation pressure on the rupee will remain. It can be two to three rupees per dollar even with central bank intervention,” said one dealer on condition of anonymity.
Foreign investors hold over $ 3.6 billion in treasury bills and bonds, Central Bank data showed.
The Central Bank, which has repeatedly said it would intervene in periods of excessive volatility, on Wednesday said it will maintain flexibility in the rupee exchange rate despite the currency’s weakening trend.
Dealers said a two percentage-point cut in commercial banks’ statutory reserve ratio (SRR) by the Central Bank earlier would have also prompted foreigners to either take profits or change positions to go for short-tenure securities.
The rupee hit a record low of 134.30 on 28 June 2012, after the Central Bank moved to a flexible rupee exchange rate regime in February last year. It has fallen 1.4% so far this week and 3.3% through this month. The currency depreciated 10.7% in 2012.
Sri Lanka’s main stock index edged up 0.64%, or 38.68 points, to 6,111.36, ending a four straight session falling streak and recovering from its lowest close since 3 May hit in the previous session.
Investors picked up banking shares, but stockbrokers said concerns over a possible pullout by more foreign funds dented sentiment.
Foreign selling accounted for 72.3% of the day’s turnover of Rs. 1.31 billion ($ 10.11 million), more than this year’s daily average of around Rs. 1 billion.
Foreigners bought stocks worth Rs. 451 million on Thursday, while net foreign outflows were Rs. 496.6 million, extending the total outflows to Rs. 1.17 billion in the last three sessions.
