Spot rupee hits record low on importer dollar demand

Reuters - The Sri Lankan spot rupee, which resumed trading on Friday after almost a month, hit a record low of 144.65 per dollar, hurt by importer dollar demand a day after the Central Bank said it had stopped significant intervention in the market.

Central Bank Governor Arjuna Mahendran said late on Thursday that the monetary authority was not intervening in the market as it had done in the past, but stepped in to prevent abnormal imbalances due to one or two large transactions.

“We have a market which is not very liquid. We can’t let one or two transactions completely to knock the rupee either way. So our job is to maintain the stability,” Mahendran told reporters. “We will intervene when you have extraordinary transactions.”

Mahendran, less than a week after the Central Bank increased the key policy rate by 50 basis points from record lows, said the bank cannot rule out another rate hike if foreign selling of government securities continues.

On Friday, the spot currency, which the Central Bank had not allowed to trade below 144 levels from 27 January, surpassed its previous record low of 144.30 hit on 4 January.

Dealers said dollar selling by one of the state banks and a private bank had prevented the rupee from falling which was seen as the Central Bank’s intervention.

The rupee ended at 144.40/70 per dollar, recouping some of the losses made earlier in the day after the banks dollar sales.

One-week rupee forwards, which had been acting as a proxy for the spot currency, ended at 144.75/90 per dollar after hitting a low of 145.15. They ended at 144.80/85 on Thursday.

The rupee will be under pressure with seasonal import demand picking up ahead of the local New Year season starting in April, a dealer said.

Foreign outflows from government securities also weighed on the currency.

Foreign investors sold 2.5 billion rupees ($17.37 million) worth of government securities in the week ended Feb. 24, data from the Central Bank showed, taking the total offloaded since Dec. 30 to 34.95 billion rupees.

Commercial banks parked 50.5 billion rupees of surplus liquidity on Friday, using the Central Bank’s deposit facility at 6.50 percent, official data showed.

The Central Bank’s net holding of government securities was up by 15.252 billion rupees on Friday, official data showed.