Jan 17, 2017 (Reuters) – The Sri Lankan rupee traded marginally higher on Tuesday in light volume as foreign banks sold dollars, but the market expects the currency to weaken after the central bank allowed flexibility in the 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.
The spot rupee, which did not trade for nearly a month, started trading on Monday and was at 150.10/15 per dollar at 0503 GMT, slightly firmer from Monday’s close of 150.15/18, dealers said.
“Spot (rupee) started trading since last evening as we see some foreign banks selling (dollars),” a currency dealer said, asking not to be named.
Dealers said both one-week and one-month forwards also traded.
The rupee was under pressure with foreign investors exiting government securities. Foreign investors sold a net 16.1 billion rupees ($107.3 million) worth of government securities in the week ended Jan. 11, latest central bank data showed.
The market shrugged off Finance Minister Ravi Karunanayake’s 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 rupee.
The central bank’s moral suasion in early January prevented a sharp decline even as the monetary authority signalled a change in its intervention policy.
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 down 0.15 percent at 6,192.45 as of 0519 GMT. Turnover stood at 47.6 million rupees ($317,333).