Rupee recovers from 7-month low on banks’ dollar sales

Saturday, 29 June 2013 00:00 - - {{hitsCtrl.values.hits}}

Banks sell dollars to cover rupee short positions; dealers
Central Bank says no pressure on rupee on Friday
Share trading limited to one hour after technical glitch

COLOMBO, 28 June (Reuters): Sri Lanka’s rupee recovered on Friday from an over seven-month low, as banks sold dollars to cover their short positions in rupees to maintain the month-end statutory reserve ratio, currency dealers said.

The currency gained 0.6% to hit Rs. 129.90/130.10 per dollar in the first hour of trading. However, it closed 0.15% firmer at Rs. 130.50/60, recovering from Thursday’s close of Rs. 130.70/80, its lowest since 8 November. Currency dealers said banks were in need of rupees on Friday to shore up their rupee reserves to the Central Bank’s required level and most of them had been selling dollars because of this. “This is a normal behaviour of the rupee,” Central Bank Deputy Governor Nandalal Weerasinge told Reuters. “There was no pressure on the rupee today.” The rupee has been on a falling trend since early this month with foreign investors pulling out of Sri Lankan Treasury bonds due to a rise in the U.S. treasury yields after the Federal Reserve’s plan to trim its stimulus. The Central Bank sold dollars on Thursday to smoothen the volatility after the currency fell more than 1% during the day. Dollar assets have become a big lure for investors as the Fed prepares to dial down its massive bond-buying program, which has triggered a huge selloff in emerging market bonds and currencies in the past week. Foreign investors hold over $ 3.6 billion in Treasury bills and bonds, Central Bank data showed. The Sri Lankan rupee fell 1.24% this week and 3.12% through this month. It has fallen 2.3% so far this year. It had hit a record low of Rs. 134.30 on 28 June, 2012, after the Central Bank moved to a flexible rupee exchange rate regime in February last year. It had depreciated 10.7% in 2012. Sri Lanka’s main stock index edged up 0.16%, or 9.65 points, to 6,121.01 in just one hour of trading after a technical glitch delayed the start of trading. Investors picked up telecom and banking shares, but brokers said concerns over a possible pullout by more foreign funds dented sentiment. Foreign investors were net buyers for the first time in the last four sessions, buying Rs. 98.47 million ($ 754,000) of shares, extending the net foreign inflow so far this year to Rs. 15.2 billion. The turnover in the one hour of trade was Rs. 265.9 million. This year’s daily average turnover was Rs. 1.02 billion.