March 9, 2010 / 11:27 AM / 9 years ago

Sri Lanka rupee gains on bank buying; shares slip

COLOMBO, March 9 (Reuters) - Sri Lankan rupee LKR= closed firmer on Tuesday as banks sold dollars to buy rupees on hopes of rise in interest rates due to government's high domestic borrowing that has resulted high budget deficit, dealers said.

The rupee closed at 114.05/10 per dollar, compared with Monday’s 114.15/18, as banks bought the local currency to cover short positions amid tight liquidity in the market.

“With high budget deficit and high domestic borrowing, banks expect interest rates to rise further,” said a currency dealer on condition of anonymity.

The yield on Sri Lanka’s benchmark 91-day treasury bill has risen 1.13 percentage points in the last three months despite the central bank keeping key policy rates unchanged at multi-year lows since November.

Sri Lanka’s 2009 budget deficit hit an eight-year high of 9.7 percent of GDP, well over the 7 percent target set by the International Monetary Fund for a $2.6 billion loan and the country will miss the 2010 target as well. [ID:nSGE6210HH]

The IMF on Feb. 25 said it would delay a third tranche of the loan amid concerns over high domestic financing until it sees the budget after the April 8 parliamentary polls. [ID:nSGE61O0GP]

Sri Lanka will hold legislative elections on April 8. For Sri Lanka’s key political risks, see [ID:nRISKLK]

The island nation will relax its controls on foreign exchange with effect from March 11, aiming to improve investor confidence, the central bank said on Monday. [ID:nSGE6270J3]

Sri Lanka shares fell 0.7 percent, snapping a three session rise on retail profit taking in thin volumes of trade.

The All-Share Price Index .CSE of the Colombo Stock Exchange fell 26.05 points to 3809.01. It hit a record high of 3,849.23 points on Monday.

“Its totally retail profit taking,” said Harsha Fernando, CEO at SC Securities.

Foreigners were net buyers of 63.8 million rupees worth of shares on Tuesday. But they have been net sellers in 33 out of the 43 trading sessions so far this year. [ID:nSGE6200D7]

Foreigners, who had been net buyers since 2001, turned net sellers in 2009, selling 785.3 million rupees worth of shares. They have sold 5.48 billion rupees worth shares so far this year and 2.96 billion rupees since the Jan. 26 presidential polls.

Market heavyweight John Keells Holdings JKH.CM fell 0.6 percent to 167 rupees, while shares in the country’s top fixed-line phone operator Sri Lanka Telecom SLTL.CM closed 1.3 percent weaker at 37 rupees.

The bourse is still up 12.5 percent so far this year, following a 125 percent rally in 2009, one of the best performers in Asia.

The day’s turnover was 617 million rupees ($5.4 million), more than the 2009 daily average of 593.6 million rupees.

The interbank lending rate or call money rate CLIBOR edged up to 9.265 percent from Monday’s 9.234 percent.

For secondary market rates, please see <0#LKBMK=>. ($1=114.075 Sri Lankan rupees) (Editing by Ramya Venugopal)

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