Sri Lanka's central bank allowed the rupee to fall by 0.15 percent on Wednesday by guiding a daily trading band lower for the second straight session, the fifth downward adjustment since April 30, a move dealers said reflected lower domestic interest rates and a broadly strong dollar. Dealers also said rupee forwards traded weaker due to importer dollar demand, while the central bank's moral suasion prevented a sharp fall in the local currency.
"The central bank dropped the spot by 20 cents today. The pressure is there due to imports and no body is selling dollars, but the central bank is preventing the fall though moral suasion," said a currency dealer asking not to be named. The central bank allowed a 20 cent, or 0.15 percent, fall in the spot rupee to 133.70 per dollar a day after permitting a 20 cent drop in the spot rupee to 133.50, but dealers said the spot did not trade on the day due to the regulator's moral suasion, preventing deals below 133.50.
The central bank allowed the spot to appreciate 10 cents to 133.30 on Friday after allowing it to trade up 10 cents on Wednesday. It permitted the rupee to depreciate 60 cents in three calibrated steps since April 30 through May 12. The central bank has been preventing high volatility and sharp movements in the currency through moral suasion since December. Central bank officials were not available for comment. Actively traded three-month forwards were at 136.40/70 per dollar at 0535 GMT, compared with Tuesday's close of 136.30/50 as the central bank defended the two-month and one-month forwards.
Two-month forwards were unchanged at 135.50/80 per dollar and one-month forwards were steady at 134.70/90, as the central bank prevented a sharp fall. Foreign investors sold 2.1 billion rupees ($15.7 million) worth of government securities during the week ended May 13, central bank data released on Friday showed.
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