The Sri Lankan rupee edged higher on Wednesday due to light exporter dollar sales in the absence of importer dollar demand, but dealers expect the local currency to depreciate on lower interest rates that could drive credit growth and imports.
The spot rupee was at 130.60/70 per dollar at 0548 GMT, firmer from Monday’s close of 130.64/67. Both stock and currency markets were closed on Tuesday to mark the country’s independence day.
“There was no real importer (dollar) demand and it was the regular inflows which brought to dollar down little,” said a currency dealer who asked not to be identified.
Dealers expect the currency to depreciate in the near future because of rising credit demand in a low interest rate regime. The U.S. Federal Reserve’s decision and this weekend U.S. statement on bringing in another U.N. resolution against Sri Lanka will aggravate the depreciation.
Dealers said the market was concerned about a possible gradual pull-out of foreign investors from government securities, resulting in depreciation of the currency.
Foreign holdings in government securities fell 0.2 percent to 481.89 billion rupees ($3.69 billion) in the week ended Jan. 29, the latest central bank data showed.
Central Bank Governor Ajith Nivard Cabraal last week said Sri Lanka should not experience any major capital outflows or market volatility due to the Fed’s stimulus cut.
Dealers said a renewed move by the United States to bring a resolution against Sri Lanka at a U.N. Human Rights Council meeting in March could also hit investor confidence.
The rupee has gained about 3.5 percent since it hit a record low of 135.20 on Aug. 28. It lost 2.5 percent in 2013.
At 0552 GMT, Sri Lanka’s main stock index was down 0.29 percent, or 17.87 points, at 6,201.47. (Reuters)
