COLOMBO: The Sri Lankan rupee ended firmer on Monday as dollar selling by exporters and banks outpaced demand for the US currency from importers, but dollar purchases by state-owned banks weighed on the currency, dealers said.
The spot rupee, which rose as high as 153.50 in early trade, ended at 153.60/65 per dollar, slightly firmer from Friday's close of 153.65/70.
"There were some (dollar) conversions; some exporters and stock market-related dollar inflows. But in the latter part of the day, we saw a state bank was buying dollars," a currency dealer said, asking not to be named.
"The state (bank) buying (was) probably for their import bills or maybe on behalf of the central bank."
Officials from the central bank were not immediately available for comments.
Dealers said they expect a gradual depreciation in the currency as the central bank has been buying dollars.
Central Bank Governor Indrajith Coomaraswamy said last week that the rupee was still "over-valued" and that the central bank was still buying dollars to avoid any appreciation.
The banking regulator is compelled to buy dollars from the market to meet a reserves target set by the International Monetary Fund (IMF) under a $1.5 billion, three-year loan programme.
Coomaraswamy told Reuters that the central bank had bought dollars in the range of $750 million to $800 million from the market, of the $1.2 billion it had planned to purchase in the 10 months from March this year.
Analysts expect the currency to depreciate 4 percent this year. It has already fallen 2.6 percent so far in 2017.
Dealers said the market was also concerned that the pressure on the rupee was likely to heighten due to a fall in government bond yields, after the IMF called for more monetary policy tightening and measures to curb strong credit growth.
T-bill yields fell 4-22 basis points at a weekly auction last Wednesday.
The fall in T-bill yields, which move in tandem with market interest rates, will increase demand for cheap credit and add downward pressure on the currency, dealers said.
The IMF, which completed its second review of a $1.5 billion loan on Tuesday, said the country's performance under its programme has been "broadly satisfactory".
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