Sri Lanka rupee slightly weaker on importer dollar demand
COLOMBO, Sept 18
COLOMBO, Sept 18 (Reuters) - The Sri Lankan rupee was a tad weaker on Wednesday on mild dollar demand from importers while the central bank defended the currency via moral suasion, dealers said, ahead of a U.S. Federal Reserve decision on its ultra-loose monetary policy.
Dealers said the three-day forward, or spot-next, was active on Wednesday after the central bank directed some banks not to trade spot above 132.25 rupees.
The spot-next traded at 132.40/50 per dollar, weaker from Tuesday's close of 132.30/40.
"Rupee weaker in dull importer dollar demand, it was the Spot-next active today as the central bank asked some banks not to trade rupee spot above 132.25 per dollar," a currency dealer said.
The rupee spot was inactive on Wednesday for the second straight session after it was actively traded in four straight sessions through Monday. It was quoted at 132.20/30 by 0552 GMT, compared with Tuesday's close of 132.20.
The Fed will decide later on Wednesday when and by how much it would 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.
However, central bank governor Ajith Nivard Cabraal on Tuesday said Sri Lanka would not face an adverse impact from the Fed's tapering.
Many dealers expect 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 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 when 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 last week after falling for 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.
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 0.07 percent firmer at 0559 GMT. It had hit a more than eight-month low on Sept.9. (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anupama Dwivedi)
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