Sri Lankan rupee forwards ended steady on Wednesday as the central bank's moral suasion kept the local currency flat despite importer dollar demand, while dealers expect the rupee to remain under pressure due to lower interest rates. Dealers said the central bank, which has kept the spot rupee and all forwards up to one month steady through moral suasion, asked the banks not to trade one-month forwards above 134.80 per dollar,
"As a result, three days above one month forwards picked up. The central bank is strictly controlling the market," a currency dealer said on condition of anonymity. Actively traded three days above one-month forwards ended at 134.90/135.00 per dollar and one-month forwards ended steady at 134.80/135.00.
"With interest rates falling, there will be an increasing downward pressure on the rupee if not for huge inflows. Yields on treasury bills fell 3 to 11 basis points (bps), extending their decline to 41-51 bps since the central bank cut key rates on April 15. The central bank on Wednesday said it will receive $400 million later this week from a $1.5 billion swap agreement with the Reserve Bank of India in line with a deal signed last month. However, many dealers said a delay in raising up to $1.5 billion as planned has also increased pressure on the currency, with the central bank heavily defending the rupee. Central bank officials were not available for comment.
Two-week and one-week forwards were steady at 133.90/134.00 and 133.60/70 per dollar, respectively, while the central bank prevented the spot rupee from dropping below 132.90/133.20, a limit it set in February. Currency dealers said political uncertainty has been weighing on investor confidence and putting pressure on the exchange rate after President Maithripala Sirisena's 100-day programme ended on Thursday.
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