Sri Lankan rupee trades steady; stocks little changed

Aug 09, 2016 (Reuters) – The Sri Lankan rupee traded steady on Tuesday as dollar demand by importers was offset by conversions of the U.S. currency from exporters amid concerns that price controls by the government could hurt imports, dealers said.

Two Sri Lankan economists last week told a summit attended by President Maithripala Sirisena and his finance minister that the government’s economic policies were destabilising and inconsistent, with one calling its price controls “supreme idiocy”.

The central bank on July 28 raised its main interest rates by 50 basis points each in a surprise move aimed at curbing stubbornly high credit growth that is adding to concerns about inflationary pressures.

The rupee gained last week as foreign investors sold dollars to buy local shares, expecting better profits from corporates on hopes that a recent rate increase by the country’s central bank would help improve the island nation’s macro-economic outlook.

The spot rupee was at 145.60/68 per dollar at 0657 GMT, hardly changed from Monday’s close of 145.60/75.

The spot rupee is usually managed by the central bank, and market participants use the forward market levels for guidance on the currency.

“There was exporter dollar selling by a local bank which offset importer dollar demand,” a currency dealer said, asking not to be named.

“The government’s price controls are hurting the imports and the central bank is trying its best to curb credit demand after the recent rate hike.”

Since a $1.5 billion inflow from a dual-tenure sovereign bond issue, the central bank has largely not intervened in the currency market to defend the rupee. Central bank officials were not available for comment.

One-week rupee forwards traded at 145.83/87 per dollar, compared with Monday’s close of 145.93/97.

Foreign investors have net bought 63.7 billion rupees ($437.50 million) worth of government securities from April 29 through Aug. 3, central bank data showed.

Sri Lankan shares were also nearly unchanged from the previous session.

The benchmark Colombo stock index was up 0.03 percent at 6,508.87 at 0712 GMT. Turnover stood at 503.1 million rupees ($3.46 million).

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