COLOMBO, Feb 16 (Reuters) - The Sri Lankan rupee fell on Thursday, hurt by importer dollar demand while concerns of further depreciation continued to weigh on sentiment, dealers said.
The market has factored in a gradual depreciation risk for the rupee and expects a 4-5 percent fall in the currency this year, they said.
Finance Minister Ravi Karunanayake said after market hours on Tuesday that protecting a fragile rupee was more important than controlling interest rates as the local currency tended not to rebound after depreciating.
Rupee forwards were active, with one-month forwards actively trading at 151.95/152.00 per dollar at 0456 GMT, weaker from Wednesday’s close of 151.60/70.
Two-week forwards, which were active for the last few days, did not trade. But they were quoted at 151.35/50 per dollar, weaker from Wednesday’s close of 151.25/30.
“There is huge demand from both foreign and local (banks). Import demand is also there,” said a currency dealer, requesting not to be named.
“If you look at the one-month, the spot should be around 150.90. But the central bank’s reference rate is still at 150.75. I feel they might revise the spot reference today due to the pressure (to depreciate).”
The Central Bank governor, Indrajit Coomaraswamy, said last week the bank was not planning to abruptly stop supporting the rupee.
The apex bank has allowed the currency to gradually depreciate since mid-December, revising its spot reference rate multiple times. It has said that defending the currency with foreign exchange reserves does not “seem sensible”.
The rupee has weakened 0.77 percent so far this year, under pressure due to rising imports and net selling of government securities by foreign investors. It fell 3.9 percent last year, following a 10 percent drop in 2015.
The central bank kept its key rates steady last week for a sixth straight month, but flagged possible “corrective measures” in the months ahead, in a sign that further tightening might be on the cards to temper inflation pressures and safeguard a fragile rupee.
Foreign investors net sold 31.38 billion rupees ($208.30 million) worth of government securities in the four weeks to Feb. 8, according to latest central bank data.
Sri Lankan shares were up 0.27 percent at 6,192.31 as of 0502 GMT. Turnover was at 405.4 million rupees ($2.69 million). ($1 = 150.7500 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)