The Sri Lankan rupee fell to a three-week low on Wednesday due to importer dollar demand, while dealers said the currency could face downward pressure if the United States investigates a claim by the country’s spokesman that it imported Iranian crude via third parties and imposes sanctions.
The rupee traded slightly weaker at 130.32/37 per dollar at 0603 GMT from Tuesday’s close of 130.32/35, its lowest since June 3.
“There is importer dollar demand. State banks are also buying, probably for oil bills,” a currency dealer said asking not to be named.
Currency dealers said it was too early to speculate about the implications of the country breaching U.S. sanctions.
The Sri Lankan government spokesman said on Thursday the country had been buying Iranian crude from various countries via third parties. The country’s foreign ministry has rejected the spokesman’s claim.
The U.S. State Department has said in the event of Sri Lanka breaching the sanctions, the United States would have to consider a response consistent with its legal obligations and “any violations would immediately make the company or institution vulnerable to sanctions”.
“But nothing has happened of that nature so far and it has been a relief for the market,” said a currency dealer with a Colombo-based foreign bank.
Sri Lanka’s oil import bill could rise if it has to buy more refined oil, dealers said.
Dealers expect the currency to be stable if there is no pressure from the oil import bills due to rising exports and a fall in imports and private-sector credit growth.
The rupee has been on a rising trend since late February due to strong inflows from remittances in the absence of higher imports and private sector credit demand for the currency, dealers said.
The central bank has absorbed around $550 million from the domestic foreign exchange market this year through June 17 to prevent sharp volatility and appreciation.
Sri Lanka’s main stock index was up 0.1 percent, or 6.46 points, at 6,317.33 as of 0610 GMT. Turnover was 453.1 million rupees ($3.5 million), with 33.6 million shares changing hands, Reuters reports. ($1 = 130.2000 Sri Lankan Rupees)
