Rupee forwards surrender early gains on importer dollar demand

Reuters: Sri Lankan rupee forwards ended slightly weaker on Friday, surrendering early gains as the demand for dollars to cover import bills surpassed greenback selling by exporters and banks, currency dealers said.

The rupee is expected to further depreciate due to rising imports, selling of government securities by foreign investors and slowing dollar inflows, the dealers said.

Markets were, however, cautious before the Central Bank’s February monetary policy rates scheduled to be released later. The bank is expected to keep the rates steady at record lows, a Reuters poll showed.

One-week rupee forwards, which act as a proxy for spot, ended at 144.60/65 per dollar, down from Thursday’s close of 144.43/50.

Rupee forwards have been active since 27 January  as there has been little trading in the spot currency, with banks reluctant to trade below the 144.00 level amid moral suasion by the Central Bank.

Central Bank officials were not available for comment.

“A state bank bought dollars to cover import bills,” said a currency dealer asking not to be named.

Foreign investors pulling out of government securities were putting pressure on the rupee, dealers said.

Foreign investors sold Rs. 10.1 billion ($69.96 million) worth of government securities between 10 -17 February, data from the Central Bank showed, taking the total offloaded since 30 December to Rs. 32.47 billion.

The rupee is also under pressure due to a pick up in importer demand for dollars ahead of the April festive season, dealers said.

Sri Lanka needs to pay more than $5 billion in foreign loans including interest payments in 2016, while its reserves were around $6.3 billion at the end of January, according to Central Bank data.

Commercial banks parked Rs. 27.6 billion ($191.73 million) of surplus liquidity on Friday, using the Central Bank’s deposit facility at 6 %, official data showed.

The Central Bank’s net holding of government securities was up by Rs. 23.7 billion on Friday, official data showed.

The markets will be closed on Monday for a Buddhist religious holiday. Normal trading will resume on Tuesday.