COLOMBO, March 7 (Reuters) - The Sri Lankan rupee ended steady in thin trade on Tuesday as mild importer dollar demand offset sales of the greenback by exporters while traders awaited cues on foreign selling in bonds, dealers said.
Rupee forwards were active, with two-week forwards ending at 151.85/95 per dollar, unchanged from Monday’s close.
“There was no big demand. Everybody is on the watch. They are waiting to see the direction, whether there’ll be more bond sales by foreigners,” said a currency dealer on condition of anonymity.
“I don’t know if this is a calm before the storm.”
The International Monetary Find, during the latter part of the trading session, urged the central bank to allow flexible exchange rates and stand ready to tighten monetary policy after the island nation missed the net international reserves target in it $1.5 billion loan programme.
Dealers said the rupee would be under pressure due to dollar demand from importers ahead of the traditional Sinhala-Tamil New Year in mid-April, and as foreign investors continue to sell government securities.
Ratings agency Moody’s said in a report last week that lower agricultural exports and higher imports to make up for the loss in domestic production would weigh on the current account deficit and foreign exchange reserves.
The government’s handouts to farming families affected by drought could make the fiscal deficit target a challenge, the rating agency added.
Lower agricultural output due to the drought will force the government to increase imports, dealers said. For further imports, the government needs more U.S. currency while there will be fewer dollars coming in from agriculture commodity exports.
Finance Minister Ravi Karunanayake said on Friday the worst drought to hit Sri Lanka in 40 years may cost the government up to 40 billion rupees ($264.7 million), but should not worsen the fiscal deficit.
Foreign investors bought a net 701 million rupees ($4.64 million) worth of government securities in the week ended March 1, recording the first weekly net inflow for the year. They have sold a net 63.76 billion rupees of such instruments so far this year.
Sri Lanka could face balance-of-payments pressure due to foreign outflows from government securities, a government document showed last month, even as the island nation was in the process of raising up to $2.5 billion from foreign borrowing.
The rupee has weakened 1.07 percent so far this year. It fell 3.9 percent last year, following a 10 percent drop in 2015. ($1 = 151.0000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)