July 11, 2018 / 12:46 PM / 12 days ago

Sri Lanka rupee closes steady in dull trade

COLOMBO, July 11 (Reuters) - The Sri Lankan rupee closed steady on Wednesday in dull trade, as importer dollar demand offset selling of the U.S. currency by exporters, traders said.

The rupee closed flat for a second straight session at 159.25/35 per dollar, after declining for six consecutive sessions. It has declined 3.9 percent so far this year.

“There was not much of trade and we think the rupee will hold at this level for the moment. We haven’t seen much volatility in the last few sessions,” a currency dealer said.

The central bank is concerned about the dollar hoarding and market manipulation that’s exacerbating the rupee’s weakness and has the tools to correct any misalignment in the exchange rate, its governor told Reuters.

The central bank left its key rates unchanged as expected on Friday, saying a low rates environment and stabilising inflation would support its economy in the face of a fragile currency.

Central Bank Governor Indrajit Coomaraswamy said the depreciation was mainly driven by external factors and that emerging-market currencies were under pressure.

The International Monetary Fund (IMF) said last month that Sri Lanka’s economy remained vulnerable to adverse shocks due to a sizeable public debt and large refinancing needs.

Currency dealers said the rupee was weakening gradually after a brief recovery.

Dealers said the downward pressure on emerging market currencies was due to the hike in U.S. rates, trade tensions between China and the United States, and rising oil prices. The spot rupee hit an all-time low of 160.17 per dollar on June 20.

A strengthening dollar since mid-April has increased the credit risk of several emerging markets, including Sri Lanka, due to currency depreciation, ratings agency Moody’s said late last month.

Foreign investors sold government securities worth a net 674 million rupees ($4.24 million) in the week ended July 4, bringing the outflows so far this year to 29.6 billion rupees ($185.9 million), central bank data showed. ($1 = 159.2000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)

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