Sri Lankan rupee ends steady; seen stable until imports, credit pick up

COLOMBO Wed May 7, 2014 7:32am EDT

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COLOMBO May 7 (Reuters) - The Sri Lankan rupee ended flat on Wednesday as importer dollar demand was offset by exporter sales of the green back, while dealers expect the currency to be stable in the near term until private sector credit demand and imports pick up.

The rupee closed at 130.60/61 per dollar, unchanged from Tuesday's close.

"There was nothing happening," said a currency dealer on condition of anonymity. "Dull trading was seen and we do not see much movements until imports and credit growth pick up."

Many dealers said lack of business confidence has been the reason for lower credit growth and imports.

The latest trade data released by the central bank on Monday showed imports in February fell 6.2 percent, while exports edged up 5.4 percent and reserves by end of February were sufficient to finance 5-1/2 months of imports.

Despite a multi-year low interest rate regime, private sector credit grew 4.4 percent in February from a year earlier, the slowest expansion since May 2010. That compared with growth of 5.2 percent in January and 13.3 percent in February 2013.

Dealers said lack of credit expansion and a contraction in imports could hit economic growth unless the government props up expansion through infrastructure funding.

The central bank, in its monetary policy statement last month, however, expressed confidence that private sector credit growth would rebound in the second quarter and push up the pace of economic expansion.

Early this year, the central bank intervened to keep the rupee steady despite downward pressure and has consistently said it will continue to intervene in the event of excess volatility.

Many dealers expect the rupee to be under upward pressure due to inflows in the absence of outflows from imports.

Some dealers said central bank's dollar buying to defend the currency from appreciation could be an "expensive exercise" now as it tends to reduce interest rates further by increasing rupee liquidity when the credit growth and imports are lower.

Dealers expect the rupee to trade in a 130.60-130.70 range in the near future until credit growth picks up. The currency has been hovering between 130.55 and 130.70 since March 3, Thomson Reuters data showed, with the central bank intervening to smoothen any sharp volatility. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Anand Basu)

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