COLOMBO, Feb 3 (Reuters) - The Sri Lankan rupee closed slightly firmer on Monday, stiffened by inward remittances and exporter dollar sales, but dealers expect the local currency to depreciate on lower interest rates that could drive credit growth and imports.
The spot rupee ended at 130.64/67 per dollar, firmer from Friday’s close of 130.72/75.
“There were inward remittances and export conversions. With lack of importer demand the rupee ended firmer,” said a currency dealer who asked not to be identified.
“But the market expects the currency to depreciate in the near future because of rising credit demand in a low interest rate regime. The Fed decision and this weekend’s U.S. statement on bringing in another U.N. resolution against Sri Lanka will aggravate the depreciation.”
Dealers said the market was concerned about a possible gradual pull-out of foreign investors from government securities, resulting in depreciation of the currency.
Central Bank Governor Ajith Nivard Cabraal last week said Sri Lanka should not experience any major capital outflows or market volatility due to the Fed’s stimulus cut.
Foreign holdings in government securities fell 0.2 percent to 481.89 billion rupees ($3.69 billion) in the week ended Jan. 29, the latest central bank data showed.
Dealers also said a renewed move by the United States to bring a resolution against Sri Lanka at a U.N. Human Rights Council meeting in March could also hit investor confidence.
A State Department official said at the weekend the United States would table a U.N. human rights resolution against Sri Lanka, putting new pressure on Colombo to address war crimes claims, but the government rejected U.S. criticism of its human rights record as “grossly disproportionate”.
The rupee has gained about 3.5 percent since it hit a record low of 135.20 on Aug. 28. It lost 2.5 percent in 2013.
Stock and currency markets will be closed on Tuesday to mark the country’s independence day and normal trade resumes on Wednesday. (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Clarence Fernandez)