The Sri Lankan rupee closed little changed in thin trade on Tuesday as dollar selling by foreign banks offset importer demand for the U.S. currency, even as the rupee is expected to weaken after the central bank allowed flexibility in the exchange rate, dealers said.
The rupee has been under pressure due to rising imports and net selling of government securities by foreign investors, while the central bank has adjusted the spot rupee reference rate to a record low of 150.15 rupees per dollar.
The spot rupee, which did not trade for nearly a month, was actively traded on Tuesday, and closed at 150.15/25 per dollar compared with Monday’s close of 150.15/18, dealers said.
“There were sellers in the morning but we have seen some demand building up in the latter part of the day. And we have seen demand is building up for two-week (forwards),” a currency dealer said, asking not to be named.
The rupee was under pressure with foreign investors selling a net 16.1 billion rupees ($107.3 million) worth of government securities in the week ended Jan. 11, latest central bank data showed.
The market has also shrugged off Finance Minister Ravi Karunanayake’s announcement last week of higher returns and immediate residence visas to foreigners who invest at least $300,000, in a move to ease pressure on the rupee.
The central bank’s moral suasion in early January prevented a sharp fall in the rupee even as the monetary authority signalled a change in its intervention policy.
Central Bank Governor Indrajith Coomaraswamy said earlier this month that defending the rupee with foreign exchange reserves “doesn’t seem sensible” as it has always been followed by a sharp depreciation in the currency.