Sri Lankan rupee steady as exporter dollar sales offset importer demand

Nov 24, 2016 (Reuters) – The Sri Lankan rupee was steady on Thursday as dollar selling by exporters offset demand for the U.S. currency by importers who fear the economic policies of U.S. President-elect Donald Trump would lead to a rise in the dollar and interest rates.

Dealers said foreign investors might pull out of emerging markets, including from Sri Lanka, if the U.S. Federal Reserve raises interest rates next month.

Minutes from the Fed’s Nov.1-2 meeting, released on Wednesday, showed policymakers were confident that a strengthening economy was enough to warrant interest rate increases soon.

Sri Lankan rupee forwards were active on Thursday, with spot-next forwards trading at 148.50/55 per dollar at 0724 GMT compared with Wednesday’s close of 148.50/60.

The spot rupee was hardly traded, but was quoted at 148.00/60.

The central bank revised the spot rupee reference rate to 147.95 per dollar last Friday, from 147.75.

“There were some local banks selling (dollars); the demand is also there, but the rupee is trading steady with the selling,” said a currency dealer asking not to be named.

Finance Minister Ravi Karunanayake said on Thursday that “turbulent times” were the reason for the rupee volatility, adding it was driven by sentiment.

“Today this market is not fundamentally driven, it is sentiment driven. There are no fundamentals,” Karunanayake told reporters in capital Colombo.

“You will have this rocky thing owing to turbulent times that are created artificially by many theories that are put forward, but at the end of the day you will see the real (value) of the rupee coming out with our strong fiscal policies that we will be adopting.”

The rupee has been under pressure as exporters have been reluctant to sell dollars due to uncertainties in the local market following the national budget, which has proposed a revision in corporate and withholding taxes.

The currency has also faced pressure due to net selling of government securities by foreign investors after new taxes were proposed in the budget, dealers said.

Foreign investors net sold government securities worth 37.12 billion rupees ($250.81 million) in the five weeks ended Nov. 16, data from the central bank showed.

The trend of rupee depreciation was however expected to ease as investors wait for central bank action after the International Monetary Fund (IMF) released the second tranche of a loan, worth $162.6 million, under its $1.5-billion loan programme, dealers said.

Sri Lankan shares were marginally firmer, with the benchmark Colombo stock index up 0.01 percent at 6,243.23 as of 0746 GMT. Turnover stood at 296.2 million rupees ($2 million).