REUTERS: The Sri Lankan rupee ended weaker yesterday on importer dollar demand as local traders bought the US currency as a precaution amid concerns of a steep depreciation in the rupee in the absence of Central Bank intervention, dealers said.
Rupee forwards were active with two-week forwards ending at 153.40/70 per dollar, after hitting a low of 153.65 during the day, weaker than Tuesday’s close of 152.70/90.
They have fallen 1.04 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 are waiting to see the bottom,” said a currency dealer, requesting not to be named. “There is some panic at the moment. We have seen a sharp depreciation since February 2 and it has created panic. I don’t see Central Bank doing anything to prevent the sharp fall.”
The apex bank’s decision to not intervene in the market was in contrast to its Governor Indrajit Coomaraswamy’s comment early this month. He said the bank was not planning to abruptly stop supporting the rupee. The rupee will fall further because of seasonal importer demand until the traditional Sinhala-Tamil New Year in mid-April, another dealer said.
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 US $ 1.5 billion loan.
The currency is under pressure due to foreign outflows from government securities. Foreign investors have net sold US $ 325.70 million worth of securities in the seven weeks to February 15, surpassing the total net foreign outflow of US $ 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 US $ 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 1.3 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.