COLOMBO: Sri Lanka's rupee edged up 0.2 percent on Monday, helped by lower importer dollar demand after the central bank raised policy rates and increased dollar liquidity from worker remittances, exporter conversions, and bank sales.
The rupee closed up at 127.65/75 from Thursday's close of 125.80/126.00 a dollar. The markets were closed on Friday for a holiday.
After the markets closed on Thursday Sri Lanka's central bank raised key monetary policy rates to more than a two-year high to curb credit growth, which it said appeared to be expanding at an "undesired pace".
Currency traders said the increased dollar liquidity from remittances and exporter conversions was mainly due to the upcoming traditional new year on Friday.
However, dealers said the outlook for the rupee is still uncertain even after the central bank on Monday said the country will see a $1.2 billion surplus in balance-of-payments this year through increased inflows and reduced outflows.
"After the new year holiday, there will be heavy volatility with high depreciation pressure on the rupee as the central bank will stop intervention in financing oil bills," a currency dealers said on condition of anonymity.
The central bank has already said it may stop supplying dollars to pay for oil import bills from May, its latest move to allow more rupee flexibility after it refrained from intervening in foreign exchange markets in February.
The currency has risen 4.7 percent since hitting a record low of 131.60 on March 19, but overall has fallen 9.1 percent since the central bank stopped defending it on Feb. 9.
The stock market slipped 0.2 percent or 10.13 points to 5,413.12, with trading volume and the turnover slumping to their lowest since 2009.
The day's turnover was 131.9 million rupees ($1 million), its lowest since April 30, 2009, and well below this year's daily average of 1.33 billion rupees.
Foreign investors were net buyers of 23.9 million rupees worth of shares, extending net offshore buying to 21.1 billion rupees so far in 2012.
The Colombo bourse is one of the worst performers this year among Asian markets, losing nearly 11 percent.
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