Jan 16, 2017 (Reuters) – The Sri Lankan rupee edged higher on Monday as foreign banks sold dollars, but the market expects the currency to weaken after the central bank allowed flexibility in exchange rate, dealers said.
The rupee has been under pressure due to rising imports and net selling of government securities by foreign investors while the central bank adjusted the spot reference rate to a record low of 150.15 rupees per dollar on Friday.
Rupee forwards were active, with two-week forwards trading at 150.45/55 per dollar at 0557 GMT, firmer from Friday’s close of 150.60/70.
“There was pressure on the rupee when trading started, but later foreign banks started selling dollars,” a currency dealer said, asking not to be named.
Foreign investors sold a net 16.06 billion rupees ($107.28 million) worth government securities in the week ended Jan. 11, latest central bank data showed.
The Central bank on Friday adjusted the spot reference rate by 15 cents to a fresh record low of 150.15, dealers said.
The spot rupee was hardly traded, dealers said.
One-week forwards were not actively traded since Dec. 30.
The market shrugged off Finance Minister Ravi Karunanayaka comments on Thursday announcing higher returns and immediate residence visas to foreigners who invest at least $300,000, in a move to ease pressure on the island nation’s currency.
The central bank’s moral suasion in early January prevented further decline even as the monetary authority signalled a change in its intervention policy.
Officials from the central bank were not available for comments.
Central Bank Governor Indrajith Coomaraswamy said earlier this month that defending the rupee with foreign exchange reserves “doesn’t seem sensible” as it has always been followed by a sharp depreciation in the currency.
Sri Lankan shares traded 0.11 percent weaker at 6,210.73 as of 0602 GMT. Turnover stood at 725.6 million rupees ($4.85 million).