REUTERS - The Sri Lankan rupee edged down yesterday due to importer dollar demand a day after the Central Bank surprisingly raised key policy rates, dealers said. After market hours on Thursday, the central bank raised its main interest rates by 50 basis points each in a surprise move aimed at curbing stubbornly high credit growth that is adding to concern about inflationary pressures. The Central Bank Governor said yesterday the nation’s economy can still grow 5 percent or slightly faster this year even after increases in monetary policy rates.
One-week rupee forwards, which have been acting as a proxy for the spot rupee, were at 146.15/30 per dollar at 0612 GMT, slightly weaker than Thursday’s close of 146.10/25. The spot rupee is tightly managed by the Central Bank, and market participants use the forward market levels for guidance on the currency. “There is no impact of the rate hike. Technically, the currency should strengthen when interest rates go up but that is not happening here,” said a currency dealer, asking not to be named.
The rupee is under pressure due to importer dollar demand and dealers said the market has shrugged off speculation of a strong rise in the rupee as the island nation’s heavy debt repayment reduced dollar availability for the central bank to defend the currency.
The spot rupee was not traded yesterday. Spot-next, which are rupee forwards settled a day after the spot rupee settlement, were at 146.05/15 per dollar, compared with Thursday’s close of 145.95/10. The Sri Lankan stock index was down 0.11 percent at 6,384.99 as of 0620 GMT, with a turnover of Rs.181.2 million ($1.24 million).