COLOMBO (REUTERS): The Sri Lankan rupee closed weaker yesterday as importer dollar demand surpassed mild selling of the U.S. currency by exporters, traders said. The rupee closed at 159.55/70 per dollar, compared with Thursday’s close of 159.40/50. It has declined 3.9 percent so far this year.
Central Bank Governor Indrajit Coomaraswamy had said earlier that the depreciation was mainly driven by external factors and that emerging-market currencies were under pressure.
“There was demand today. We saw some foreign banks also on the buying side. Inflows were very low since it’s the middle of the month. We don’t see much of inward remittances too,” a currency dealer said.
The Central Bank is concerned about the dollar hoarding and market manipulation that’s exacerbating the rupee’s weakness and has the tools to correct any misalignment in the exchange rate, its governor had told Reuters. The Central Bank left its key rates unchanged as expected last week, saying a low rates environment and stabilising inflation would support its economy in the face of a fragile currency.
The International Monetary Fund (IMF) said last month that Sri Lanka’s economy remained vulnerable to adverse shocks due to a sizeable public debt and large refinancing needs. Currency dealers said the rupee was weakening gradually after a brief recovery.
Dealers said the downward pressure on emerging market currencies was due to the hike in U.S. rates, trade tensions between China and the United States, and rising oil prices. The spot rupee hit an all-time low of 160.17 per dollar on June 20. A strengthening dollar since mid-April has increased the credit risk of several emerging markets, including Sri Lanka, due to currency depreciation, ratings agency Moody’s said late last month.
Foreign investors sold government securities worth a net Rs.674 million (US$4.24 million) in the week ended July 4, bringing the outflows so far this year to Rs.29.6 billion (US$185.9 million), Central Bank data showed.