Sri Lankan rupee forwards closed weaker on Thursday as policy uncertainty weighed on the currency, discouraging exporter selling of dollars amid importer demand, dealers said. One-month forwards ended at 133.80/95 per dollar compared with Monday's close of 133.67/70. Markets were closed for local holidays on Tuesday and Wednesday.
Currency dealers said the rupee may depreciate because of an expected increase in consumption after a raft of tax reductions on key commodities in last week's supplementary budget. Fears of depreciation kept exporters away from the market, resulting in the currency's fall and leading the central bank to cap four-day forwards at 133.00 and one-week forwards at 133.40, dealers said.
One-week forwards were capped at 133.40, after closing at 133.30/40 on Monday. That forced dealers to trade in the forwards two-days above one-week, which ended at 133.45/50, dealers said. Two-week forwards ended at 133.52/60 per dollar. The new government on Thursday imposed taxes on cash-rich firms to pay for populist policies and tax reductions on key commodities in a bid to woo voters as it faces a parliamentary election in the second quarter.
Dealers said exporters were reluctant to sell as they expected further depreciation in the currency in the short term, due to the widening trade balance and in line with softer global currencies. The spot currency has not been trading, while forwards are facing downward pressure, dealers said. The market had been expecting a flexible exchange rate with more foreign grants under the new government as opposed to the controlled exchange rate regime earlier.