Sri Lankan rupee one-week forwards traded steady on Friday, but dealers said the local currency was under pressure due to lack of exporter dollar conversions and moral suasion by the central bank, which is holding the currency at current levels.

One-week dollar/rupee forwards, which have been acting as a proxy for the spot rupee in the absence of trade in three-day forwards on Friday, traded at 145.40/60 per dollar at 0555 GMT, little changed from Thursday’s close of 145.35/60.

The market is confused with the central bank intervention in both spot rupee and forwards, dealers said.  “You never know where the central bank wants the rupee. Exporters are not converting the dollars aggressively any more while there is demand for dollars from importers,” a currency dealer said asking not to be named.

“When there was downward pressure, the central bank on Thursday brought down the spot rate by 25 cents to signal appreciation. There is no reason for rupee appreciation because we do not see large inflows coming in.”

Foreign exchange reserves were falling as the central bank is selling dollars to defend the currency amid some debt repayments, the dealer said.

Central Bank officials were not available for comment. The central bank reduced the spot rupee’s peg to 144.50 per dollar on Friday, from 144.75 in the previous session. The spot rupee was not traded for a fourth straight session on Friday, dealers said.

On Monday, the spot closed at 144.85/95 per dollar.  The spot rupee has been pegged down from 145.75 levels in early June after the local currency rose following increased dollar conversions by exporters and overseas funds. For a second stratight day, there was no active trading in three-day dollar/rupee forwards, known as spot next, dealers said. The forwrads closed at 144.85/90 per dollar on Wednesday.

Spot next, which has acted as proxy for the spot currency since January, indicates the exchange rate for the day followingconventional spot settlement. For Friday’s trade, the spot next settlement takes place five days ahead due to the intervening weekend. Foreign investors net bought 8.47 billion rupees ($58.53 million) worth of government bonds in the week ended June 8,central bank data showed.

A lack of large inflows from exporters, and borrowings were weighing on the currency, dealers said.  The Sri Lankan stock index rose 0.23 percent to 6,450.32 as of 0611 GMT, a day after falling 1 percent due to concerns over a government decision to reintroduce capital gains tax, Reuters reports.

-Agencies