Rupee edges up on dollar sales

Reuters: The rupee ended slightly higher on Friday as exporter dollar sales and inward remittances surpassed demand for the greenback by importers, dealers said.

Rupee forwards were active, with two-week forwards ending at 151.80/90 per dollar, compared with Thursday’s close of 151.90/152.00.

“The importer demand was there, but it was outweighed by inward remittances and exporter conversions,” said a currency dealer on condition of anonymity.

“We can see some import demand on the pipeline. If we don’t get exporter flows, we will see the rupee depreciating again with growing imports.”

Dealers said the rupee would be under pressure due to dollar demand from importers ahead of the traditional Sinhala-Tamil New Year in mid-April, and as foreign investors continue to sell Government securities.

Ratings agency Moody’s said in a report that lower agricultural exports and higher imports to make up for the loss in domestic production would weigh on the current account deficit and foreign exchange reserves.

The Government’s handouts to farming families affected by drought could make the fiscal deficit target a challenge, Moody’s added.

Lower agricultural output due to the drought will force the Government to increase imports, dealers said. For further imports, the Government needs more US currency while there will be fewer dollars coming in from agriculture commodity exports. Both will increase the demand for the greenback and put pressure on the rupee.

Sri Lanka’s fuel imports in January jumped to double the typical monthly levels, with the country rushing to plug an energy shortfall as severe drought hits its hydropower output, industry sources said.

Foreign investors sold a net Rs. 15.37 billion ($101.62 million) of Government securities in the week ended 22 February, extending the outflow from such instruments to Rs. 64.5 billion.

Sri Lanka could face balance-of-payments pressure due to foreign outflows from Government securities, a Government document showed last month, even as the island nation was in the process of raising up to $2.5 billion from foreign borrowing.

The rupee has weakened 1% so far this year. It fell 3.9% last year, following a 10% drop in 2015.