COLOMBO Dec 23 The Sri Lankan rupee closed
higher on Friday as dollar selling by a state-run bank helped
the local currency gain in lacklustre trading ahead of a long
weekend, amid little demand from importers for the U.S.
currency, dealers said.
Rupee forwards were active, with one-week forwards
closing at 149.75/90 per dollar, up from Thursday's close of
The spot rupee and spot-next were hardly traded. The central
bank increased the spot reference by a total 40 cents last week.
"There was some intervention with a state bank's dollar
sales, which we did not see until yesterday," said a currency
dealer asking not to be named.
The central bank said after market hours on Friday that
"allowing the exchange rate to depreciate is not necessarily a
bad approach in economic management."
In an explanatory note titled 'Exchange rate and economic
impact of depreciation', it said "though the net effect is
difficult to be evaluated accurately, it is important to
understand that depreciation of the rupee has not only negative
implications, but also positive implications on the Sri Lankan
"The most prudent policy stance would be to allow the
exchange rate to be determined flexibly, according to supply and
demand conditions for foreign exchange in the market," it said.
The central bank also said any decision to move away from
its current intervention policy would lead to a sharp
depreciation immediately before stabilising thereafter.
"Allowing the exchange rate to be determined according to
market forces would not necessarily lead to a continuous
depreciation of the rupee," it said.
Some dealers said they expected the central bank to permit
market forces to determine the rupee's direction next year.
Officials from the central bank were not available for
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 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 a 25-basis-point
rate increase by the U.S. Federal Reserve last week.
Analysts said they expected some capital outflows as an
immediate reaction to the Fed rate hike.
Foreign investors net sold 55.2 billion rupees ($369.23
million) of government securities in the nine weeks ended Dec.
($1 = 149.5000 Sri Lankan rupees)
(Reporting by Shihar Aneez; Editing by Biju Dwarakanath)