Rupee forwards recoup losses to end steady on bank dollar sales

Reuters: Rupee forwards ended steady on Wednesday, recouping some early losses as late dollar sales by banks offset early importer demand for the greenback, dealers said.



However, they said, growing uncertainty after the Government said it would impose fresh taxes in a move that would enable the country to qualify for an IMF loan weighed on the currency.

One-week rupee forwards, which act as a proxy for the spot currency, traded at a low of 145.35 per dollar during the day, but ended steady at 145.15/20 per dollar.

The spot currency did not trade below 143.90, seen as the Central Bank’s desired level.

“The demand was there in the morning, but we have seen some banks selling dollars in the latter part of the day,” said a currency dealer, asking not to be named.

Dealers also said policy uncertainty is deepening with the new taxes and the Capital Gains Tax may discourage foreign investors.

The new tax moves come a week after Fitch’s downgrade of Sri Lanka’s sovereign rating, and some dealers said the rupee would face further downward pressure due to seasonal importer demand.

Finance Minister Ravi Karunanayake and Central Bank Governor Arjuna Mahendran, however, said the downgrade will not impact the country’s borrowing.

The downgrade will be of concern to international investors and market players, analysts said, adding it would push up the cost of Government borrowings in the international market, putting pressure on the rupee.

Foreign investors sold Rs. 961 million ($6.7 million) worth of Government securities in the week ended 2 March, data from the Central Bank showed, taking the total offloaded since 30 December to Rs. 35.9 billion.

Commercial banks parked Rs. 2.89 billion ($20.00 million) of surplus liquidity on Wednesday, using the Central Bank’s deposit facility at 6.50%, while it borrowed Rs. 6.255 billion using the Central Bank’s lending facility at 8%, official data showed.