REUTERS: Sri Lankan rupee forwards edged up yesterday as dollar conversions by exporters and banks surpassed demand for the U.S. currency by importers, while the spot rupee, which was traded actively for a second straight day, also rose, dealers said. The dollar/rupee forwards, known as spot next, ended at 145.53/63 per dollar, compared with Wednesday’s close of 145.95/146.05.
The spot next, which act as a proxy for the spot currency, indicates the exchange rate for the day following conventional spot settlement, which is five days ahead for yesterday’s trade.
Dealers said the spot currency, which started active trading on Wednesday for the first time since Jan. 18, was active for a second straight day yesterday.
The spot rupee ended at 145.50/60 per dollar compared with Wednesday’s close of 145.75/146.05.
“The spot is actively trading, but spot next is active for trades below 145.50 as the spot is not allowed to trade below 145.50,” a currency dealer said.
Sri Lanka’s central bank fixed the spot rate at 143.90 per dollar until May 2. The spot rupee reference rate was pegged at 145.75 through Wednesday, and it was pegged at 145.50 yesterday.
Two state-run banks, through which the Central Bank usually directs the market, sometimes sell dollars to curb falls in the rupee.
Central Bank officials were not available for comment on whether it had intervened in the forex market.
Dealers, however, expect the local currency to strengthen further, after the International Monetary Fund’s (IMF) executive board approved a three-year, $1.5 billion loan to support the country’s economic reform agenda.
The government is also set to raise up to $1.5 billion via sovereign bonds and four international banks have been appointed as the lead managers.
Prime Minister Ranil Wickremesinghe told parliament yesterday the government will take measures to abolish the Exchange Control Act and will introduce capital gains tax soon, without giving any time frame.
“Abolishing exchange control is something that is needed and it will help a flexible exchange rate. But the capital gains tax will be bit more negative, especially in the stock market,” said Shiran Fernando, an analyst at Colombo-based Frontier Research.