REUTERS: Sri Lankan rupee ended slightly firmer yesterday as dollar selling by exporters outpaced importer demand for the U.S. currency, even as investors weighed the consequences of weather-related damage to the economy, dealers said.
The extent of the damage due to floods and landslides is yet to be assessed, with Sri Lanka’s main agricultural exports - tea and rubber - hit by the worst torrential rains in 14 years due to the cyclone ‘Mora’ formed in the Bay of Bengal.
Damage to agricultural exports would put pressure on the rupee, currency dealers said. Analysts said hospitality and manufacturing sectors are likely to be the worst hit.
However, dealers said there was some optimism over expected inflows in the form of international assistance, which could help offset potential downward pressure on the local currency.
Rupee forwards were active yesterday, with spot-next forwards ending at 152.80/90 per dollar, compared with Wednesday’s close of 152.85/95 per dollar.
“Aid inflows could help the rupee, but the Central Bank will have to tighten interest rates to curb unnecessary credit growth and inflationary pressure,” said a currency dealer.
The floods could hurt the overall economic growth and also widen the government’s budget deficit with high infrastructure spending, dealers said.
The rupee has been under pressure after the Central Bank Governor on May 18 said the bank would allow gradual depreciation of the currency.
The spot rupee did not trade yesterday.
The Central Bank fixed the spot rupee reference rate at 152.50 on May 5.