Sri Lanka rupee steady ahead of bond sale; Iran crude adds pressure

COLOMBO, June 23 Mon Jun 23, 2014 8:23am EDT

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COLOMBO, June 23 (Reuters) - The Sri Lankan rupee ended flat on Monday, as inflows from remittances offset dollar demand from importers ahead of a government-guaranteed bond sale by Sri Lankan Airlines.

Dealers, however, said the rupee could be under pressure if the United States takes any action against Sri Lanka for importing Iranian crude via third parties, as Sri Lanka's government spokesman says it has done.

The rupee ended little changed at 130.25/30 per dollar compared with Friday's close of 130.26/31.

The island nation's national carrier, Sri Lankan Airlines, announced initial price guidance on a 5-year, government-guaranteed bond, for a yield in the 5.625 percent area.

"There is not much pressure on either side today and we are awaiting to see the outcome of the Sri Lankan bond," a dealer said, asking not to be named.

The U.S. has denied it had any agreement with Sri Lanka to allow Colombo to import Iranian crude via third parties, letting it avoid Western sanctions aimed at curbing Iran's nuclear programmes.

The Sri Lankan government spokesman said on Thursday the island nation had been buying Iranian crude from various countries via third parties, with the understanding of the United States.

State Department deputy spokeswoman Marie Harf on Friday said the U.S. takes sanctions enforcement very seriously and investigates all such allegations.

"Were we to find that such activity did take place, we would have to consider our response consistent with our legal obligations. We cannot discuss hypothetical cases, however, or discuss how we would respond to them, except to say that any violations would immediately make the company or institution vulnerable to sanctions," she said.

Sri Lanka's oil import bill could rise if it has to buy more refined oil, dealers said. However, the country's foreign ministry has rejected the government spokesman's claim.

Dealers expect the currency to be stable, if there is no pressure from the oil import bills, due to rising exports and fall in imports and private sector credit growth.

The rupee has appreciated 0.4 percent during the year up to June 19, the central bank said in a statement on Friday, while the central bank had absorbed around $550 million from the domestic foreign exchange market this year through June 17. (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)

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