Sri Lankan rupee 1-wk forwards fall on importer dollar demand; Brexit weighs

COLOMBO, June 24 (Reuters) – Sri Lankan rupee one-week forwards fell on Friday as it faced pressure from a strengthening dollar after Britons voted to leave the European Union, cautioning importers, but selling of the U.S. currency by a state bank capped losses, dealers said.

Britain voted to leave the 28-member bloc, results from Thursday’s referendum showed, a stunning repudiation of the nation’s elites that deals the biggest blow to the European project of greater unity since World War Two.

The sterling plunged on the vote to leave and equities were hammered across the world on Friday as turmoil swept through global markets.

One-week dollar/rupee forwards, which have been acting as a proxy for the spot rupee in the absence of trade in three-day forwards, were trading at 147.70/90 per dollar at 0654 GMT, weaker from Thursday’s close of 147.10/30.

It hit a low of 148.10 per dollar in early trade. Dealers said one of the two state-run banks sold dollars at 148.00 rupees, before selling it at 147.90 rupees.

The central bank usually directs the market via two state-run banks. Central bank officials were not available for comment.

“The rupee is under pressure. The importer demand is there as the importers rushed in with the Brexit results,” said a currency dealer asking not to be named.

“With the Brexit, risk profile of countries like Sri Lanka will rise, and also, we will have to negotiate afresh trade preferences and other trade-related activities which might impact our exports apart from other global risks. Already the Indian rupee is reacting to it,” the dealer said.

Shiran Fernando, an analyst at Colombo-based Frontier Research, said Brexit will push investors to go back to safe haven assets as the U.S. currency is strengthening.

“There will be more volatility and investors will move away from risky assets. This will have an impact on Sri Lanka’s timing of dollar bond borrowing. That will have an impact in the near future. In the long term, Sri Lanka might see lower export earnings from Europe if the pound and euro fall.”

The country’s central bank said on Friday that its chief Arjuna Mahendran would not seek an extension of his term until a parliamentary committee clears his name from allegations levelled against him.

The Sri Lankan stock index was down 0.5 percent at 6,365.24 as of 0707 GMT, on a turnover of 197.2 million rupees ($1.34 million)