Sri Lankan rupee forwards ended steady on Tuesday, recouping early losses as dollar sales by a foreign bank offset importer dollar demand, dealers said. Dealers expect the currency to depreciate further due to rising imports, selling of government securities by foreign investors and slowing dollar inflows.
One-week rupee forwards, which act as a proxy for spot, ended steady at 144.50/55 per dollar. Rupee forwards have been active since January 27 as there has been little trading in the spot currency, with banks reluctant to trade below the 144.00 level amid moral suasion by the central bank. Central bank officials did not respond to calls seeking comment.
"The demand was there from importers. But we have seen a foreign bank selling dollars. It may be due to inflow to the bank," said a currency dealer asking not to be named. Currency dealers also said foreign investors exiting government securities was putting pressure on the currency. Foreign investors sold 3.07 billion rupees ($21.33 million) worth of government securities between February 3 and 10, data from the central bank showed, taking the total offloading since December 30 to 22.4 billion rupees.
The rupee is under pressure due to a lack of inflows, and a pick-up in importer demand ahead of the festive season in April, dealers said. Sri Lanka needs to pay more than $5 billion in foreign loans including interest payments in 2016, while its reserves were only around $6.3 billion at the end of January, according to central bank data. Dealers said the central bank would not be able to hold the rupee at current levels without strong dollar inflows.
The central bank usually intervenes in times of high volatility though it floated the rupee on September 4. Commercial banks parked 22.132 billion rupees ($153.59 million) of surplus liquidity on Tuesday, using the central bank's deposit facility at 6 percent, official data showed. The central bank conducted an overnight reverse repo auction to inject rupee liquidity into the market, dealers said. The central bank accepted 3 billion rupees worth of bids at weighted average yield of 6.59 percent after receiving 5 billion rupees worth of bids. The central bank offered 20 billion rupees at the auction.