The Sri Lankan rupee closed marginally weaker on Thursday as dollar demand from importers and banks in late trade surpassed selling of the U.S. currency in early trade and inward remittances, dealers said.
A strengthening dollar since mid-April has increased the credit risk of several emerging markets, including Sri Lanka, due to currency depreciation, ratings agency Moody’s said on Wednesday.
Moody’s said a strong dollar would also lead to a drop in foreign exchange reserves of countries such as Argentina, Ghana, Mongolia, Pakistan, Sri Lanka, Turkey, and Zambia.
The rupee ended at 158.20/40 per dollar, compared with Tuesday’s close of 158.10/40. Financial markets were closed on Wednesday for a public holiday.
The spot rupee hit an all-time low of 160.17 per dollar on June 20 and is down 3.2 percent so far this year.
“There were inward remittances and exporter (dollar) sales today, but in the latter part of the day we saw some buying interest, specially from foreign banks probably for bond outflows,” a currency dealer said.
The downward pressure on the rupee has shown signs of easing after the island nation received more than half a billion dollars from a Chinese port operator last week.
China Merchants Port Holdings made a $584 million payment as part of a $1.12 billion deal to operate the deep sea Hambantota port.
Dealers said they expect the rupee to trade in the 163-165 per dollar range by the end of the year.
The International Monetary Fund (IMF) said last week Sri Lanka’s economy remains vulnerable to adverse shocks because of sizable public debt and large refinancing needs.
Head of the IMF mission to Sri Lanka, Manuela Goretti, told reporters last week that she expected the currency to remain under pressure.
Foreign investors sold government securities worth a net 2.9 billion rupees ($18.26 million) in the week ended June 20, bringing the outflows so far this year to 25.5 billion rupees, central bank data showed. ($1 = 158.8000 Sri Lankan rupees)