COLOMBO, Feb 22 (Reuters) - The Sri Lankan rupee fell on Wednesday due to importer dollar demand as local traders bought the U.S. currency on concerns about a steep depreciation in the rupee in the absence of central bank intervention, dealers said.
Rupee forwards were active with two-week forwards trading at 153.10/30 per dollar, weaker than Tuesday’s close of 152.70/90. They have fallen 0.85 percent so far this week.
“Importers are trying to buy dollars as they expect a sharp fall in the currency due to a lack of central bank intervention. Exporters are not selling dollars and waiting to see the bottom,” said a currency dealer, requesting not to be named.
“There is some panic at the moment. We see a sharp depreciation since Feb. 2 and it has created an unnecessary panic. I don’t see central bank doing anything to prevent the sharp fall.”
The central bank’s decision to not intervene in the market was contrary the central bank governor Indrajit Coomaraswamy’s comment early this month. He said the bank was not planning to abruptly stop supporting the rupee.
Another dealer said the rupee will fall further because of seasonal importer demand until the traditional Sinhala-Tamil new year in mid-April.
The currency fall comes even as a mission from the International Monetary Fund (IMF), which has asked the central bank to maintain a flexible exchange rate, is in Colombo for the second review of a $1.5 billion loan.
The currency is also under pressure due to foreign outflows from government securities. Foreign investors have net sold $325.70 million worth of securities in the seven weeks to Feb. 15, more than the total net foreign outflow of $324.3 million in 2016, according to the latest central bank and government data.
Sri Lanka could face balance-of-payments pressure due to foreign outflows from government securities, a government document showed on Thursday, even as the island-nation is in the process of raising up to $2.5 billion from foreign borrowing.
Finance Minister Ravi Karunanayake said last week that protecting a fragile rupee was more important than controlling interest rates as the local currency tended not to rebound after depreciating.
The rupee has weakened 1.1 percent so far this year, under pressure from 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.
Sri Lankan shares were up 0.14 percent at 6,136.15 as of 0706 GMT. Turnover was 317.7 million rupees ($2.10 million). ($1 = 151.1500 Sri Lankan rupees) (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Sunil Nair)