May 30 (Reuters) – Sri Lankan rupee forwards fell on Monday due to dollar demand from importers amid fears the currency could weaken further if the government increases spending following the country’s worst natural disaster since 2004, dealers said.
Dollar/rupee forwards, known as spot next, were at 147.80/148.00 per dollar, weaker compared with Friday’s close of 147.55/60.
Spot next, which acts as a proxy for the spot currency, indicates the exchange rate for the day following conventional spot settlement, which is three days ahead for Monday’s trade.
“There is importer (dollar) demand,” a currency dealer said.
Another dealer said the downward pressure on the rupee would persist despite expected inflows.
“We do not expect the rupee to appreciate sharply in the event of inflows from loans as the government has expected.”
The spot currency did not trade on Monday.
The spot rupee reference rate has been pegged at 145.75, dealers said. Sri Lanka‘s central bank had fixed the spot rate at 143.90 per dollar until May 2.
The cost of landslides and floods caused due to days of torrential rain will be between $1.5 billion and $2 billion at the minimum, the government said last week, as the Indian Ocean island struggles to recover from a cyclonic storm.
Additional government borrowing for post-disaster spending could hurt the currency if there is lack of foreign and local aid, dealers said.
They said the rupee continued to face pressure despite foreign inflows into government securities and expectations of further inflows.
Foreign investors were net buyers of 7.23 billion rupees ($49.28 million) in the week ended May 25, latest central bank data showed.
The government is in the process of borrowing up to $3.5 billion from foreign sources via syndicated loans, sovereign bonds, and Islamic bonds, Finance Minister Ravi Karunanayake said last week.
Analysts said foreign inflows from such loans or bond issues would ease the pressure on the rupee.