REUTERS - Sri Lankan rupee forwards were steady yesterday in dull trading amid fears that the currency would weaken if the government increased spending following the country’s worst natural disaster since 2004, dealers said.
Additional government borrowing for post-disaster spending could hurt the currency if there is lack of foreign and local aid, the dealers added. The dollar/rupee forwards, known as spot next, were steady at 147.40/50 per dollar at 0628 GMT.
Spot next, which acts as a proxy for spot currency, indicates the exchange rate for the day following conventional spot settlement, which is five days ahead for yesterday’s trade.
“The (importer) demand is there but dealers are reluctant to trade (forwards) below 147.50 fearing repercussions from the Central Bank. So everybody is just awaiting to see the direction or guidance,” a currency dealer said, asking not to be named. Central Bank officials were not available for comment. The cost of last week’s landslides and floods after days of torrential rains will be between $1.5 billion and $2 billion at the minimum, the government said earlier this week, as the Indian Ocean island struggles to recover from a cyclonic storm.
The spot currency did not trade yesterday. The spot rupee reference rate has been pegged at 145.75, dealers said. Sri Lanka’s Central Bank had fixed the spot rate at 143.90 per dollar until May 2.
The government was in the process of borrowing up to $3.5 billion from foreign sources via syndicated loans, sovereign bonds, and Islamic bonds, Finance Minister Ravi Karunanayake said on Wednesday.
Analysts said foreign inflows from such loans or bond issues would ease the pressure on the rupee.
Meanwhile, the Sri Lankan stock index was 0.21 percent weaker at 6,555.01 as of 0631 GMT on a turnover of Rs. 801.3 million ($5.47 million) .