Dec 22, 2016 (Reuters) – The Sri Lankan rupee fell on Thursday as importer demand for the greenback outpaced inflows from remittances and dollar conversions by exporters, dealers said.
Also, weighing on sentiment were dollar purchases by state-controlled banks, they added.
The rupee forwards were active, with one-week forwards trading at 150.95/151.00 per dollar, compared with Wednesday’s close of 150.50/90.
“There is importer demand. Inflows from remittances and conversions from exporters are less than importer demand. We also see state banks buying dollars, which has put pressure on the rupee,” said a currency dealer, asking not to be named.
Spot-next forwards and the spot rupee were hardly traded, dealers said.
Dealers expect the central bank to hold the rupee around 150 levels until the year-end and then allow market forces to determine the rupee’s direction.
The central bank is also buying dollars to build up reserves, in line with its commitment to the International Monetary Fund, dealers said.
Other dealers said the central bank would have to let the currency depreciate or raise key policy rates at a monetary board meeting later this month.
Finance Minister Ravi Karunanayake told Reuters in an interview on Tuesday that the currency would recover and be steady next year with expected foreign inflows.
The central bank increased the spot reference rate by 30 cents to 149.10 after the Fed raised interest rates by 25 basis points last week. It raised the reference rate by a total 40 cents last week.
The rupee usually rises in December ahead of Christmas and New Year due to remittances from expatriates, but dealers said the currency was expected to face pressure this time due to higher dollar demand from importers following the Fed rate hike.
Analysts said they expect some capital outflows as an immediate reaction to the Fed rate hike, and have expressed concern that the government’s foreign borrowing cost would rise in the short term.
Foreign investors net sold 52.3 billion rupees ($350.77 million) of government securities in the eight weeks ended Dec. 14.
Sri Lankan shares hit their lowest since April 7 and were down 0.2 percent at 6,215.02 as of 0745 GMT.
Turnover stood at 89.4 million rupees ($596,995).