COLOMBO: The Sri Lankan rupee ended lower after touching a record low of 144.25 in intraday trade on Wednesday as speculation that the currency would weaken further weighed ahead of the central bank's rate decision later in the day.
The Sri Lankan central bank's monetary policy announcement is scheduled for 1400 GMT, with most analysts expecting a 25-basis-point increase in the key lending and deposit rates.
The rupee finished 0.2 percent lower at 144.20/30 per dollar, a new closing low and down from Tuesday's 143.95/144.05. The currency breached its previous record low of 143.95 hit on Tuesday.
"The lowest deal was done at 144.25. No sensible exporter or investor will convert dollars when there are signs of central bank not raising the policy rates contrary to market expectations," a currency dealer said, asking not to be named.
Six out of 11 economists polled by Reuters expect the central bank to raise interest rates by 25 basis points from record lows, a move that could relieve pressure on the fragile rupee.
"The rejection of all t-bond deals was a signal that it is not ready to allow the interest rates to go up.
This means the entire pressure is going to be on the rupee and it is likely to depreciate further if there is no rate hike," the currency dealer said.
The central bank rejected all bids, worth 33.06 billion rupees ($229.42 million), at a t-bond auction on Tuesday after planning to raise 13 billion rupees through the sale of 46-month, 70-month, and 152-month t-bonds.
The currency has fallen 6.6 percent since the central bank allowed free float of the rupee on Sept. 4, and is expected to weaken further in 2016 due to lower reserves and higher imports, currency dealers say.
It is down 9 percent so far in the year. Economists say the government's loose monetary and fiscal policies have contributed to the steep fall in the currency.
Commercial banks parked 83.5 billion rupees ($579.46 million) of surplus liquidity on Wednesday using the central bank's deposit facility at 6 percent, while they borrowed 150 million rupees using the central bank's lending facility at 7.5 percent, official data showed.
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