COLOMBO, July 20 (Reuters) - The Sri Lankan rupee traded steady on Thursday with dollar sales by exporters and foreign banks offsetting demand for the greenback from importers, while yields on government securities fell a day after T-bill yields came down, dealers said.
They said the market is concerned that the downward pressure on the rupee is likely to rise due to the fall in government bond yields, after the International Monetary Fund (IMF) called for more monetary policy tightening and measures to curb strong credit growth.
T-bill yields fell 4-22 basis points at a weekly auction on Wednesday.
The fall in T-bill yields, which move in tandem with market interest rates, will increase the demand for cheap credit and add downward pressure on the currency, dealers said.
The spot rupee was trading at 153.70/75 per dollar at 0645 GMT, compared with Wednesday’s close of 153.65/75.
“There were no large import bills and the rupee is not under pressure at the moment with little inflows coming in,” a currency dealer said asking not to be named.
“Bond yields have fallen after the Wednesday’s t-bill auction.”
Central Bank Governor Indrajith Coomaraswamy said on Monday the rupee was still “over-valued” and that the central bank was still buying dollars to avoid any appreciation.
The central bank is compelled to buy dollars from the market to meet a reserves target set by the IMF under a $1.5 billion, three-year loan programme.
He told Reuters that the central bank had bought dollars in the range of $750 million to $800 million from the market, out of the $1.2 billion it had planned to purchase in the 10 months from March this year.
Analysts expect the currency to depreciate 4 percent this year. It has already fallen 2.6 percent so far in 2017.
The IMF, which completed its second review of a $1.5 billion loan on Tuesday, said the country’s performance under its programme has been “broadly satisfactory”.
The completion of the second review will enable the IMF to release a third tranche of aid of about $167.2 million, bringing total disbursements under the arrangement to the equivalent of about $501.5 million.
Seasonal demand for dollars is expected to pick up from August, dealers said.
Sri Lankan shares were down 0.27 percent at 6,677.00 as of 0651 GMT. Turnover was 626.7 million rupees ($4.08 million).
$1 = 153.7500 Sri Lankan rupees Reporting by Shihar Aneez; Editing by Subhranshu Sahu