Sri Lanka rupee drops on importer dollar demand
COLOMBO, Sept 17
COLOMBO, Sept 17 (Reuters) - The Sri Lankan rupee traded weaker on Tuesday on some demand for importer dollars, but dealers said the currency could trade steady due to a $750-million inflow from a bond sale by state-run National Savings Bank (NSB).
However, optimism around the local currency eroded slightly ahead of a U.S. Federal Reserve meeting and as banks were compelled to trade rupee forwards after a central bank directive, dealers said.
The Fed meets later on Tuesday and Wednesday to decide when and by how much to scale back its asset purchases from $85 billion a month. Dealers said any reduction may prompt foreign investors to exit Sri Lankan government securities, which could put the rupee under pressure.
Dealers said the three-day forward, or spot-next, was active on Tuesday after the central bank directed some banks not to trade spot above 132.25 rupees.
The sot-next traded at 132.40/45 per dollar, weaker from Monday's close of 132.30/35.
The rupee spot was inactive on Tuesday after it was actively traded in four straight sessions through Monday. It was quoted at 132.20/40 by 0508 GMT, a tad weaker than Monday's close of 132.25/35.
"Spot-next is active again today as the central bank asked some banks not to trade rupee spot above 132.25 per dollar," a currency dealer said.
Many dealers see the rupee to be steady around the 132.25 level due to the NSB's 5-year bond inflow, which was priced to yield 8.875 percent.
However, some dealers said the rupee has the tendency to depreciate in the long term in the absence of firm dollar inflows from exports and remittances.
"The NSB money is borrowed money. But what we need is real inflows," a dealer said.
The currency hit a record low of 135.20 on Aug. 28, but has recovered since then. It has fallen 3.6 percent this year, after depreciating about 10 percent in 2012.
The rupee has been falling since early July as foreign investors started pulling out of local bonds as U.S. Treasury yields rose in expectation of a Fed pullback.
Foreign holdings in Sri Lankan government securities hit a more than five-month low on Sept. 11 after falling in three straight weeks. They edged down 0.6 percent to 479.59 billion rupees ($3.63 billion) in the week ended on Sept.11, the lowest since April 3, central bank data showed.
Foreign holdings have fallen 4.74 percent in the three weeks ended Sept. 11, the data showed.
Central bank Governor Ajith Nivard Cabraal said earlier this month that foreign holdings in government securities are still above the threshold of 12.5 percent of the total outstanding T-bills and T-bonds.
Sri Lanka's main stock index was 0.08 percent weaker at 0519 GMT. It had hit a more than eight-month low on Sept.9. (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Jijo Jacob)
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