Sri Lankan rupee falls ahead of decision on policy rates

Dec 30, 2016 (Reuters) – The Sri Lankan rupee traded weaker on Friday due to unusual year-end dollar demand from importers and ahead of an announcement on monetary policy by the central bank later in the day, dealers said.

Sri Lanka’s central bank is most likely to keep its key interest rates steady on Friday, even as some economists expect further tightening to ease pressure on the rupee following a rate increase by the U.S. Federal Reserve earlier this month, a Reuters poll showed.

Dealers said the market was bracing for some depreciation in the rupee in January after the central bank said last week that depreciation of the currency was not necessarily negative for the economy.
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Rupee forwards were active, with one-month forwards trading at 151.00/30 per dollar, down from Thursday’s close of 150.75/85.

One-week forwards, which were active through Thursday, spot-next forwards and the spot rupee were hardly traded, dealers said.

“We see pressure due to unusual importer dollar demand,” a currency dealer said on condition of anonymity.

The central bank raised its spot reference rate by 20 cents on Friday. The banking regulator has raised the spot reference rate by a total 50 cents this week. That followed a 40 cents increase in the spot reference rate in each of the previous two weeks amid sustained pressure on the currency.

Officials from the central bank were not immediately available for comment.

Dealers said pressure on the rupee could ease if money from a proposed $1 billion loan flows in quickly.

Sri Lanka intends to raise up to $1 billion via foreign currency term financing facility to finance the import elements of development projects specified in the 2017 budget, the government said on Wednesday.

Sri Lankan shares were down 0.28 percent as of 0716 GMT. Turnover stood at 90.5 million rupees ($605,756).

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