COLOMBO, Nov 28 (Reuters) – The Sri Lankan rupee edged down on Monday, hurt by demand for dollar from importers on fears that economic policies of U.S. President-elect Donald Trump may lead to a rise in the greenback and trigger foreign fund outflows.
Dealers said foreign investors might pull out of emerging markets, including Sri Lanka, if the U.S. Federal Reserve raises interest rates next month.
The dollar and U.S. bond yields fell on Monday as investors reversed a “Trumpflation” trade that has gripped markets since the U.S. elections, after oil prices slid on fears that producer countries meeting this week could fail to agree an output cut.
Sri Lankan rupee forwards were active, while spot-next forwards were traded at 149.10/30 per dollar at 0649 GMT, compared with Friday’s close of 148.90/149.00.
The spot rupee was hardly traded, but was quoted at 148.10/80.
The central bank revised the spot rupee reference rate to 147.95 per dollar on Nov. 18, from 147.75 earlier.
“The rupee is under pressure due to less (dollar) liquidity,” said a currency dealer, asking not to be named.
“There is some importer demand and we can’t see much (dollar supply.”
Finance Minister Ravi Karunanayake said on Thursday that “turbulent times” were the reason for the rupee volatility, adding it was driven by sentiment.
He said the markets will see downward pressure “owing to turbulent times that are created artificially by many theories that are put forward”.
However, he added that the market, at the end of the day, will see the real value of the rupee coming out with the strong fiscal policies that the government 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 38.93 billion rupees ($262.69 million) in the six weeks ended Nov. 23, 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 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 weaker, with the benchmark Colombo stock index down 0.01 percent at 6,251.29 as of 0721 GMT. Turnover stood at 324.9 million Sri Lankan rupees ($2.19 million). ($1 = 148.1000 Sri Lankan rupees)