Sri Lankan rupee closes steady; state-controlled bank sells dollars

Dec 16, 2016 (Reuters) – The Sri Lankan rupee came off early falls to close almost steady on Friday as a state-controlled bank sold dollars, dealers said.

The rupee is still under pressure as banks bought the greenback after the central bank raised the spot reference rate on Thursday and the U.S. Federal Reserve on Wednesday signalled a faster pace of rate hikes next year, said dealers.

Global financial markets have been choppy since the Fed projected three more interest rate hikes next year at its meeting on Wednesday, when it also raised rates for the first time in a year.

The dollar index, which tracks the greenback against a basket of six major rival currencies, was at 103.000 after hitting a 14-year high of 103.560 on Thursday, when it gained 1.2 percent to record its biggest daily percentage gain in nearly six months.

Rupee forwards were active with spot-next forwards closing at 149.40/70 per dollar, compared with Thursday’s close of 149.45/55.

The state-controlled bank sold dollars at 149.60 levels to select banks after the local currency touched 149.70 in intraday trade.

“Generally, we do not see importer demand in December. But we have seen some banks, including some state ones, buying dollars recently, maybe to cover positions after the central bank raised the reference rate,” said a currency dealer, asking not to be named.

On Thursday, the central bank increased the spot reference rate by 30 cents to 149.10. A day before, it had raised the rate by 10 cents.

Officials from the central bank were not available for comment.

The spot rupee was hardly traded, but was quoted at 148.65/149.60.

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 expect some capital outflow as the immediate reaction to the Fed rate hike and are also concerned over the government’s foreign borrowing cost rising in the short term.

Foreign investors net sold 45.4 billion rupees ($305.6 million) worth of government securities in the seven weeks ended Dec. 7.