Sri Lankan rupee up on bond buying by foreigners; spot starts trading

Aug 04, 2016 (Reuters) – The Sri Lankan rupee gained on Thursday as foreign investors sold dollars to buy local bonds on hopes of higher returns after the central bank’s policy rate hike, dealers said.

The spot rupee, which was last actively traded on June 13, resumed trading on Wednesday. It traded at 145.60/70 per dollar at 0704 GMT, compared to an Wednesday’s indicative price of 145.80/90, dealer said.

“There is a lot of foreign buying in local bonds. The spot currency is being actively traded today,” said a currency dealer, asking not to be named.

“Foreign investors have been buying bonds since the IMF (International Monetary Fund) loan was approved and we see some sudden increase after the appointment of the new central bank governor and last week’s policy rate hike.”

The spot rupee is usually managed tightly by the central bank, and market participants use the forward market levels for guidance on the currency.

One-week rupee forwards, which had been acting as a proxy for the spot rupee since mid-June, stood at 145.80/90 per dollar, up from Wednesday’s close of 146.00/15.

The central bank last week raised its main interest rates by 50 basis points each in a surprise move aimed at curbing stubbornly high credit growth that is adding to concerns about inflationary pressures.

Foreign investors have bought 64.5 billion rupees ($443.30 million) worth of government securities, since the IMF agreed to a $1.5 billion bailout package, from April 29 through July 27, central bank data showed.

Sri Lankan shares traded weaker on Thursday, falling from a more-than seven-week high after gaining five straight sessions through Wednesday.

The benchmark Colombo stock index was down 0.24 percent at 6,496.15 at 0711 GMT, slipping from its highest since June 14.

Turnover was 328.5 million rupees ($2.26 million).