Aug 25, 2016 (Reuters) – The Sri Lankan rupee traded weaker on Thursday led by importer dollar demand while the central bank appeared to have stopped giving a reference level for the spot currency, dealers said.
The rupee has been steady for more than a week as dealers hesitated to trade the local currency below 145.50 per dollar in anticipation of central bank intervention to defend the rupee.
At 0704 GMT, the spot rupee was at 145.75/85 per dollar, edging down from Wednesday’s close of 145.55/58, while one-week rupee forwards were at 145.95/146.05 compared to the previous day’s close of 145.76/82 per dollar.
“We do not see a reference rate from the central bank and it was determined by the market mechanism,” a dealer said asking not to be named. “The central bank seems to be allowing a little bit of depreciation.”
Central bank officials were not available to comment on whether it had stopped giving direction on the spot rate.
The spot rupee is usually managed by the central bank, and market participants use the forward market levels for guidance on the currency.
Sri Lanka’s central bank retired around $470 million worth of Sri Lanka Development Bonds last week, instead of re-issuing them, using the inflows the country got from a syndicated loan recently, a central bank official told Reuters on Tuesday.
The move may put pressure on the country’s reserves, dealers said.
The central bank has largely not intervened to defend the rupee ever since a dual-tenure sovereign bond issue raised $1.5 billion in July.
Net foreign inflows into government securities have jumped 28.5 percent to 295.7 billion rupees ($2.03 billion) through Aug. 17 since the International Monetary Fund approved a three-year, $1.5 billion loan on June 4, according to the latest central bank data.
Meanwhile, Sri Lankan shares edged down, with the benchmark Colombo stock index slipping 0.09 percent to 6,582.57 as of 0708 GMT. Turnover stood at 389.7 million rupees ($2.68 million).