COLOMBO, Sept 7 (Reuters) - The Sri Lankan rupee ended marginally weaker on Friday as importer dollar demand surpassed selling of the greenback by banks, a day after the central bank cut net open positions of commercial banks to increase dollar liquidity, dealers said.
The local currency hit a fresh low of 162.65 per dollar on Thursday, hurt by stronger demand for the dollar from importers amid weakness in regional currencies, before the central bank cut the net open positions (NOP) of commercial banks forcing banks to sell dollars.
Central bank’s Senior Deputy Governor Nandalal Weerasinghe on Friday said the monetary authority had observed commercial banks building up their positions without any fundamental reasons, which led to cut in NOP.
The currency, which hit a low of 162.05, was volatile on Friday and ended at 161.90/162.10, compared with Thursday’s close of 161.40/80.
“Banks did not want to take risk after the central bank cut the NOP. The market was volatile as nobody wanted to take risk. They covered all the bills from the market instead of from their own reserves,” said a dealer who requested anonymity.
“We did not see exporters in the market. We saw some remittances but importer demand was there.”
Junior finance minister Eran Wickremaratne on Tuesday told Reuters that the government will leave the rupee for market forces to decide.
The currency has weakened 1.2 percent last month and it has dropped 0.34 percent so far this month and 5.6 percent so far this year. The rupee will be under depreciation pressure with the year-end seasonal importer dollar demand, dealers added.
The Sri Lankan currency is also hurt by weakness in the Indian rupee. India is Sri Lanka’s biggest trading partner and the Indian rupee, which also hit a record low on Thursday, has been one of the worst performers in Asia this year.
Foreign investors bought government securities worth a net 578.3 million rupees ($3.58 million) in the week ended Aug. 29, marking the first week of net buying since April. However, they have net sold 46.9 billion rupees worth of securities so far this year, central bank data showed. ($1 = 161.5000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)