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

COLOMBO, June 23 Mon Jun 23, 2014 4:01am EDT

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COLOMBO, June 23 (Reuters) - The Sri Lankan rupee steadied 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 was little changed and traded at 130.25/30 per dollar by 0717 GMT, 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 United States 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. {ID:nL6N0P10R4]

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.

Deputy State Department 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. 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.

Exports in April rose 9.4 percent year-on-year while imports fell 5.3 percent, data from the central bank showed.

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.

Private sector credit growth in April contracted 3.3 percent from a year earlier, its worst performance since January 2010, compared with a 4.3 percent growth in March.

The central bank has gradually allowed the rupee to appreciate by lowering state banks' dollar buying rate.

Central bank Governor Ajith Nivard Cabraal has told Reuters the central bank would keep intervening in the currency market to prevent a rapid rise in the rupee.

Sri Lanka's main stock index was down 0.02 percent, or 0.96 points, at 6,301.49 as of 0711 GMT. Turnover was 544.6 million rupees ($4.18 million), with 23.7 million shares changing hands.

($1 = 130.2000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; additional reporting by Louis Charbonneau; Editing by Jacqueline Wong)

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