The Sri Lankan rupee weakened on Monday due to importer dollar demand, with the market awaiting inflows from sovereign and development bonds to see if the local currency would reverse its falling trend, dealers said. Rupee forwards were active, with two-week forwards ending at 152.50/70 per dollar, compared with Friday's close of 152.25/45. "There was demand (for dollars) from some foreign banks, maybe for imports and some dividend payment," said a currency dealer, asking not to be named.
Another dealer said the market was volatile in the past as the central bank did not intervene as it used to earlier. Foreign investors bought a net 1.87 billion rupees ($12.4 million) worth of government securities in the week ended March 8, recording the second weekly net inflow for the year. They have sold a net 61.89 billion rupees of such instruments so far this year.
Lack of central bank intervention in the market comes after the country missed the end-December net internal reserves target set by the International Monetary Fund for a $1.5 billion loan approved last year. The IMF on Wednesday urged the central bank to rebuild foreign reserves while maintaining exchange rate flexibility. Dealers said the market is awaiting dollar inflows from a $1.5 billion sovereign bond and a Sri Lanka Development Bond auction scheduled for Tuesday in which the government expects to raise $830 million.
Dealers expect the rupee to depreciate between 6 percent and 8 percent this year. S&P Global Ratings said last week that it considers exchange rate stability to remain a major priority for Sri Lanka's policymakers and its central bank, limiting monetary flexibility. The central bank is struggling to maintain a flexible exchange rate in the face of heavy foreign outflows from government securities. The rupee has depreciated 1.1 percent so far this year, having lost 3.9 percent of its value against the dollar last year.