Rupee ends weaker; cbank moral suasion caps fall

Reuters: The rupee ended weaker on Thursday on dollar demand from importers, but moral suasion by the Central Bank capped the fall after expectations of a nearly $ 1 billion inflow from a bond sale failed to ease pressure on the currency, dealers said.

Dealers said the banking regulator had been preventing spot rupee trades below 151.35 per dollar and two-week forwards below 153.30 per dollar. Central Bank officials were not available for comment.

The spot currency was quoted at 151.75/152.75 per dollar, but was not traded.

Rupee forwards were active, with two-week forwards ending at 153.10/25 per dollar, compared with Wednesday’s close of 152.90/153.10.

“There was moral suasion. The rupee is weakening because of the dollar demand and uncertainty,” said a currency dealer, asking not to be named.

On Tuesday, the central bank reversed a transaction on two-week rupee forwards that was weaker than 152.60 per dollar, dealers said at the time.

The Central Bank, on behalf of the Government, raised a record $ 973.25 million through a Sri Lanka Development Bond auction on Tuesday and inflows are expected from Friday.

The expectation of inflows did not, however, change the perception of the rupee, which has been under pressure for more than three months.

The currency has depreciated 1.6% so far this year, having lost 3.9% against the dollar last year. Dealers expect the rupee to depreciate between 6% and 8% this year.

Meanwhile, the Central Bank is struggling to maintain a flexible exchange rate in the face of heavy foreign outflows from government securities.

Foreign investors bought a net Rs. 1.87 billion ($ 12.4 million) worth of government securities in the week ended 8 March, recording the second weekly net inflow for the year.

However, they have sold a net Rs. 61.89 billion of such instruments so far this year.

The country also missed its end-December net internal reserves target set by the International Monetary Fund for a $ 1.5 billion loan approved last year.

Since then, the Central Bank has been hardly selling dollars to defend the currency, dealers said.

Last week, the IMF urged the Central Bank to rebuild foreign reserves while maintaining exchange rate flexibility.