COLOMBO, Dec 19 (Reuters) – The Sri Lankan rupee slipped on Monday on mild importer dollar demand, as the market braced for declines in the local currency with the central bank raising the spot reference rate following a hike in U.S. interest rates, dealers said.
The U.S. Federal Reserve raised interest rate by 25 basis points on Wednesday and signalled a faster pace of increases in 2017 as central bankers adapted to the incoming Donald Trump administration’s promises of tax cuts, spending and deregulation.
Rupee forwards were active with spot-next forwards at 149.55/60 per dollar at 0806 GMT, compared with Friday’s close of 149.40/70.
“There was importer dollar demand today, while we did not see usual year-end exporter sales,” 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 after raising it by 10 cents.
The spot rupee was hardly traded on Monday, but was quoted at 149.10/20.
Asian shares slipped to four-week lows as the prospect of higher U.S. interest rates and a strong dollar stemming from the incoming Trump Administration’s purported policies of cutting taxes and spending heavily threatened to suck capital out of emerging markets.
As higher U.S. yields shore up the dollar, the dollar’s index against a trade-weighted basket of six major currencies jumped to a 14-year high of 103.56 last week, though it gave up some gains to profit-taking on Monday.
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 52.3 billion rupees ($350.77 million) worth of government securities in the eight weeks ended Dec. 14.
Sri Lankan shares were down 0.22 percent at 6,254.91, their lowest since Dec. 1, as of 0816 GMT.
Stockbrokers said Prime Minister Ranil Wickremesinghe’s order to reverse and probe the sale of 7 percent stake in Selman Bank by state-owned Bank of Ceylon weighed on sentiment.
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Turnover stood at 249.2 million rupees ($1.67 million).
($1 = 149.1000 Sri Lankan rupees)