Sri Lankan rupee forwards end steady; downward pressure persists

COLOMBO: Sri Lankan rupee forwards ended steady on Thursday as dollar sales by exporters and banks offset importer demand for the greenback, currency dealers said.

The rupee is, however, expected to further depreciate due to rising imports, selling of government securities by foreign investors and slowing dollar inflows, the dealers said.

One-week rupee forwards, which act as a proxy for spot, ended at 144.43/50 per dollar, hardly changed from Wednesday's close of 144.42/48.

Rupee forwards have been active since Jan. 27 as there has been little trading in the spot currency, with banks reluctant to trade below the 144.00 level amid moral suasion by the central bank.

Central bank officials did not respond to calls seeking comment.

"The market is not sure why the central bank is defending the currency after floating it. They might be expecting some kind of inflows and the rupee to reverse the falling trend," said a currency dealer asking not to be named.

"Still the depreciation pressure is there. The central bank's moral suasion prevents the market from trading the rupee freely."

Currency dealers said foreign investors exiting government securities was putting pressure on the rupee.

Foreign investors sold 3.07 billion rupees ($21.33 million) worth of government securities between Feb. 3 and 10, data from the central bank showed, taking the total offloading since Dec. 30 to 22.4 billion rupees.

The rupee is under pressure due to a lack of dollar inflows, and a pick up in importer demand ahead of the festive season in April, dealers said.

Sri Lanka needs to pay more than $5 billion in foreign loans including interest payments in 2016, while its reserves were only around $6.3 billion at the end of January, according to central bank data.

Dealers said the central bank would not be able to hold the rupee at current levels without strong dollar inflows.

Commercial banks parked 17.4 billion rupees ($120.8 million) of surplus liquidity on Thursday, using the central bank's deposit facility at 6 percent, official data showed.