Sri Lankan rupee forwards ended firmer on Monday as the spot currency started to trade after the island nation raised nearly $1 billion from bond sales in the previous week, with the local currency seen holding steady amid further expected inflows. Sri Lanka raised $650 million on Thursday by selling an international sovereign bond at a yield of 6.125 percent and $388 million from development bonds. The spot rupee started trading as a state bank, through which the central bank usually directs the market, sold dollars at 133.90 per dollar, dealers said.
"There were dollars for trade-related transactions, but not for speculative trading," a dealer said asking not to be named. He said the pressure on the rupee might ease when expected inflows come in. Three-month forwards, which were actively traded for the last few weeks in the absence of spot trading, closed at 136.80/137.10, firmer from Friday's close of 137.80/90.
Finance Minister Ravi Karunanayake on Friday said the country will see further inflow from some international banks, while Central Bank Governor Arjuna Mahendran said the depreciation pressure was due to a stronger dollar. Dealers said exporters may start selling dollars as inflows from the dollar bond would help boost the rupee. The central bank, with effect from Monday, imposed a 5 percent penalty on exporters who hold their dollars for more than 90 days, and a monthly 2 percent thereafter, currency dealers said.
Exporters have been holding dollars without converting them as it has become cheaper for them to manage costs locally with rupee loans in a lower interest rate environment. The central bank has allowed the spot to fall 0.75 percent, or by 1 rupee, since April 30 to account for broad gains in the dollar and rising credit demand in a low rate environment. Both stock and currency markets will be closed for a Buddhist religious holiday on Tuesday. The markets will resume trading on Wednesday.
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