COLOMBO, April 5 (Reuters) - The Sri Lankan rupee ended stronger on Thursday on exporter dollar conversions and inward remittances, as Prime Minister Ranil Wickremesinghe surviving a no-confidence motion boosted sentiment, dealers said.
Wickremesinghe won a no-confidence vote in parliament late on Wednesday as a majority of legislators voted to support his coalition government but the instability caused may damage its reform agenda.
The win eased concerns over the political uncertainty of a possible government change, and investors bought longer tenure bonds on Thursday, dealers said.
Sri Lanka’s central bank unexpectedly cut its key lending rate by 25 basis points on Wednesday, as policy makers sought to revitalise an economy growing at its weakest pace in 16 years and facing heightened political uncertainty.
The rupee, which traded at 155.30 per dollar earlier in the session, closed 0.3 percent firmer at 155.50/60 per dollar, compared with Wednesday’s close of 155.80/95.
The rupee gained 0.4 percent last week.
“Exporter dollar conversions to pay salaries ahead of festival and inward remittances helped rupee gain. The importer dollar demand has eased,” said a currency dealer.
“There were demand for longer tenure bonds like 10-year t-bonds after the no-confidence vote ended yesterday.”
The central bank governor, after the policy rate announcement on Wednesday, said if the inflation rate can be maintained between 4-5 percent, the depreciation in the rupee would be around 2-3 percent.
Dealers expect pressure on the currency to ease with more inward remittances ahead of the traditional New Year on April 14.
The currency has recovered and risen 0.6 percent since it hit a record low of 156.20 per dollar on March 16. The rupee has weakened 1.3 percent so far this year after declining 2.5 percent last year and 3.9 percent in 2016.
A gradual depreciation in the rupee and higher volatility are expected this year on account of debt repayments by the government, dealers have said.
The International Monetary Fund in March said that Sri Lanka’s economy remained vulnerable to adverse shocks due to its large public debt and low external buffers.
The government must repay an estimated 1.97 trillion rupees ($12.68 billion) in 2018 - a record - including $2.9 billion of foreign loans and a total of $5.36 billion in interest.
Foreign investors sold government securities worth a net 4.8 billion rupees ($30.9 million) so far this year through March 28, central bank data showed. ($1 = 155.4000 Sri Lankan rupees) (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Amrutha Gayathri)