Rupee steady amid continued foreign equity selloff
Thursday, 13 February 2014 00:18
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REUTERS: The Sri Lanka rupee ended steady on Wednesday as outflows from foreign equity selling were offset by dollar sales by a private lender and exporters, dealers said.
Dealers expect the currency to be under pressure due to lower interest rates that could result in higher imports in March and early April, ahead of the traditional new year in mid-April.
The spot rupee closed at Rs. 130.82/85 per dollar.
Dealers said rupee premiums rose due to a technical correction as they have not got adjusted to the current lower interest rates, with the one-year forward premium higher by around 50 cents after short-term treasury bill yields fell to multi-year lows at a weekly auction on Tuesday.
The market is still concerned over the impact of the Fed’s decision on gradual reduction in its bond-buying program, with some dealers saying the rise in the US Treasury yields could prompt foreign investors to pull out their investments in government securities.
The Fed’s January decision to cut its monthly bond-buying program has largely not affected Sri Lanka so far, though some foreign funds have sold a net Rs. 4.62 billion ($ 35.31 million) in stocks in the four sessions through Wednesday.
However, foreign investors bought Rs. 15.57 billion ($ 119.1 million) in government securities in the week ended 5 February, the Central Bank’s latest data showed. The impact of inflows from this is yet to be seen, dealers said.
Central Bank Governor Ajith Nivard Cabraal said on 27 January that Sri Lanka should not experience any major capital outflows or market volatility due to the Fed stimulus cut.
Dealers expect the central bank to keep the currency below Rs. 130.85 per dollar until April. Usually, the rupee is under pressure in March and early April due to seasonal imports ahead of the traditional new year in mid-April.
The rupee has gained about 3.3% since it hit a record low of Rs. 135.20 on 28 August. It lost 2.5% in 2013.
