Rupee slips on importer dollar demand

Reuters: The Sri Lankan rupee closed marginally weaker on Thursday as importer demand for the greenback outpaced inflows from remittances and dollar conversions by exporters, dealers said.

Also, weighing on sentiment were dollar purchases by state-controlled banks in the absence of Central Bank intervention to curb the fall in the rupee, they added.

Rupee forwards were active, with one-week forwards closing at 150.70/90 per dollar, compared with Wednesday’s close of 150.50/90.

“The Central Bank is also keeping away from intervention. So, we see banks buying with the available offers with no directions,” said a currency dealer, asking not to be named.

The Central Bank is buying dollars to build up reserves, in line with its commitment to the International Monetary Fund, dealers said.

Spot-next forwards and the spot rupee were hardly traded, dealers said.

Other dealers said the Central Bank would have to let the currency depreciate or raise key policy rates at a monetary board meeting later this month.

Finance Minister Ravi Karunanayake told Reuters in an interview on Tuesday that the currency would recover and be steady next year with expected foreign inflows.

The Central Bank increased the spot reference rate by 30 cents to 149.10 after the Fed raised interest rates by 25 basis points last week. It raised the reference rate by a total 40 cents last week.

The rupee usually rises in December ahead of Christmas and New Year due to remittances from expatriates, but dealers said the currency was expected to face pressure this time due to higher dollar demand from importers following the Fed rate hike.

Analysts said they expect some capital outflows as an immediate reaction to the Fed rate hike, and have expressed concern that the government’s foreign borrowing cost would rise in the short term.

Foreign investors net sold Rs. 52.3 billion of Government securities in the eight weeks ended 14 December.