Rupee falls on importer dollar demand

Reuters - The rupee ended weaker on Friday due to dollar demand from importers who fear the economic policies of U.S. President-elect Donald Trump could lead to a rise in the greenback and interest rates.

Dealers said foreign investors might pull out of emerging markets, including Sri Lanka, if the U.S. Federal Reserve raises interest rates next month.

The dollar index, which tracks the greenback against a basket of six major global peers, edged down 0.1 percent to 101.60 on Friday, down from its Thursday peak of 102.05, the highest level since March 2003.

Rupee forwards were active with spot-next forwards ending at 148.90/149.00 per dollar, compared with Thursday’s close of 148.65/75.

The spot rupee was hardly traded, but was quoted at 148.20/149.00.

The Central Bank revised the spot rupee reference rate to 147.95 per dollar on 18 November, from 147.75 earlier.

“The demand was there, we have seen some (dollar) buying form foreign banks too,” said a currency dealer, asking not to be named.

Finance Minister Ravi Karunanayake said on Thursday that “turbulent times” were the reason for the rupee volatility, adding it was driven by sentiment.

“You will have this rocky thing owing to turbulent times that are created artificially by many theories that are put forward, but at the end of the day you will see the real (value) of the rupee coming out with the strong fiscal policies that we will be adopting,” Karunanayake told reporters in Colombo.

The rupee has been under pressure as exporters have been reluctant to sell dollars due to uncertainties in the local market following the national budget, which has proposed a revision in corporate and withholding taxes.

The currency has also faced pressure due to net selling of government securities by foreign investors after new taxes were proposed in the budget, dealers said.

Foreign investors net sold government securities worth 38.93 billion rupees ($262.69 million) in the six weeks ended 23 November, data from the Central Bank showed.

The trend of rupee depreciation was, however, expected to ease as investors wait for Central Bank action after the International Monetary Fund (IMF) released the second tranche of a loan, worth $162.6 million, under its $1.5-billion loan program, dealers said.