February 16, 2017 / 12:01 PM / a year ago

Sri Lankan rupee falls on importer dollar demand, bond selling

COLOMBO, Feb 16 (Reuters) - The Sri Lankan rupee ended weaker on Thursday, hurt by importer dollar demand and as foreign investors sold government securities amid concerns of further depreciation in the domestic currency, dealers said.

Foreign investors have 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.

The market is factoring 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 traded ended at 152.00/15 per dollar, weaker from Wednesday’s close of 151.60/70.

Two-week forwards, which were traded in the latter part of the day, ended at 151.60/70 per dollar, weaker from Wednesday’s close of 151.25/30.

“There was huge demand from both foreign and local (banks). Import demand is also there,” said a currency dealer, requesting not to be named.

“The underline message from finance minister’s comment is that the rupee needs to be controlled. The delay of Chinese projects also putting the pressure on currency as the expected money is not coming on time.”

Reuters reported that China will delay a planned $1.1 billion investment in a port on its modern-day “Silk Road” until Sri Lanka clears legal and political obstacles to a related project, sources familiar with the talks said, piling more pressure on the island nation.

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.

$1 = 150.7500 Sri Lankan rupees Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan

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