COLOMBO Dec 21 The Sri Lankan rupee fell on
Wednesday due to importer demand for the dollar and capital
outflows from government securities as the greenback held near
14-year peaks against a basket of major currencies.
The dollar has been strengthening as global yield spreads
shifted in its favour, with the U.S. Federal Reserve set to
tighten monetary policy.
At home, rupee forwards were active, with one-week
forwards trading at 150.50/80 per dollar, compared with
Tuesday's close of 150.25/50.
"There is not only importer dollar demand, but also some
foreign outflows. We do not see exporter conversions as we saw
early this month, and remittances are not up to expectations," a
currency dealer said on condition of anonymity.
The spot-next forwards and spot rupee were hardly
traded, dealers said.
"I think the authorities would hold the rupee around the 150
level until the end of the year. But the central bank will not
be able to hold it for long because it is buying dollars to
build up reserves in line with commitment to the IMF," another
currency dealer said.
Other dealers said the central bank will 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 have net sold 52.3 billion rupees ($350.77
million) of government securities in the eight weeks ended Dec.
Sri Lankan shares were down 0.15 percent at 6,225.53
as of 0838 GMT, after touching their lowest since April 7 during
Turnover stood at 417.2 million rupees ($2.80 million).
($1 = 149.0500 Sri Lankan rupees)
(Reporting by Shihar Aneez; Editing by Amrutha Gayathri)