July 28, 2016 (Reuters) – The Sri Lankan rupee edged up on Thursday as banks’ dollar sales surpassed mild demand for the greenback from importers, ahead of the central bank’s monetary policy rate announcement later in the day, dealers said.
The central bank is expected to keep its key interest rates steady for a fifth straight month on Thursday, a Reuters poll showed, despite signs that inflation and private sector credit growth are picking up. However, the possibility of a surprise rate hike is not ruled out.
One-week rupee forwards, which have been acting as a proxy for the spot rupee, were trading at 146.05/20 per dollar at 0619 GMT, slightly firmer from Wednesday’s close of 146.25/40.
The spot rupee is tightly managed by the central bank, and market participants use the forward market levels for guidance on the currency.
“There was some (dollar) selling by banks today. The demand is there, but the rupee is firmer on banks’ dollar selling,” said a currency dealer, asking not to be named.
The rupee is under pressure due to importer dollar demand and dealers said the markets 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.
Finance Minister Ravi Karunanayake said earlier this month that the rupee would “obviously appreciate” on inflows from the country’s first sale of dual-tranche eurobonds, while Central Bank Deputy Governor Nandalal Weerasinghe said last week that the $1.5 billion raised from the bond sale had been absorbed into foreign reserves.
The spot rupee was not traded on Thursday.
Spot-next, which are rupee forwards settled three days after the spot rupee settlement, were at 145.95/10 per dollar compared with Wednesday’s close of 146.10/30.
The Sri Lankan stock index was up 0.09 percent at 6,388.14 as of 0635 GMT, with a turnover of 430.2 million rupees ($2.95 million).