The Sri Lanka rupee firmed up on Thursday due to late selling by exporters and banks, dealers said, while bond yields rose on increased bond sales a day after the central bank rejected all bids at a t-bill auction. The spot currency ended at 130.30/50 per dollar, stronger than Tuesday's close of 130.80.
The spot rupee was not quoted in early trade on Thursday for a second straight day as traders were not willing to trade below 130.50, which was seen as the central bank's comfort level. "The spot started trading later in the day with some inflows and banks' (dollar) selling," said a currency dealer asking not to be named. The central bank had limited the spot currency range to between 130.40 and 130.50 per dollar during the past two sessions to prevent any sharp fall amid heavy equity selling and pullback by foreign investors from government securities.
Dealers said the five-year bond yields rose 40 basis points in the secondary market to 7 percent from Wednesday's 6.60 percent in early trade. The central bank did not accept any bids at the weekly auction on Wednesday after offering 6 billion rupees worth t-bills. The rupee had come under pressure after foreign funds sold stocks worth 4.4 billion rupees ($33.7 million) in the last three sessions through Tuesday. Currency dealers expect the rupee to weaken further on the back of sustained selling by foreign investors in government securities, which are already at multi-year lows, and rising imports in a low interest rate environment. Dealers said concerns over lower returns following the central bank's decision to limit bank deposits under its repo window have prompted some foreign investors to gradually pare stakes in government securities.
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