COLOMBO, July 14 (Reuters) - The Sri Lankan rupee fell on Friday due to thin importer demand for the greenback, while dealers said dollar buying by the central bank prevented appreciation of the local currency.
The spot rupee was trading at 153.70/75 per dollar 0618 GMT, slightly weaker from Thursday’s close of 153.65/70.
“There is some off-market importer demand. We do not see much importer demand because it is an off season. The rupee would have slightly appreciated if not for the central bank’s dollar buying,” said a currency dealer, asking not to be named.
Central bank officials were not immediately available for comments.
But on Wednesday, Deputy Governor Nandalal Weerasinghe told Reuters that the central bank has completely stopped defending the rupee unlike in the past.
Weerasinghe in an interview with Reuters said the central bank has only been buying dollars since February, and not sold any at all.
He said the central bank does not see any pressure on the rupee and the currency is determined through market-driven demand and supply.
Weerasinghe added if the monetary authority does not intervene and buy, probably the rupee will appreciate and the central bank is “buying and preventing certain appreciation”.
The market has priced in further depreciation due to the central bank’s no-intervention policy, dealers said.
The rupee has been under pressure since early this year after the central bank stopped providing support for the currency at a time when the island nation faces a balance of payments crunch. It has fallen around 2.6 percent so far this year.
The spot rupee resumed trading on June 19 for the first time since May 5, when the central bank fixed its reference rate at 152.50.
Dealers said they expected seasonal demand for dollars to pick up from August.
The central bank is compelled to buy dollars from the market to meet the reserve target set by the International Monetary Fund under a $1.5 billion, three-year loan programme.
As of 0646 GMT, Sri Lankan shares were up 0.4 percent at 6,761.95, their highest since Jan 8, 2016. Turnover was 989.8 million rupees ($6.44 million).
$1 = 153.7000 Sri Lankan rupees Reporting by Shihar Aneez and Ranga Sirilal; Editing by Sherry Jacob-Phillips