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COLOMBO, May 12 (Reuters) - The Sri Lankan rupee traded firmer on Monday at its highest level in more than six months on stock-related inflows, though one of the two state banks bought dollars at 130.35 rupees to prevent further appreciation in the local currency.
The rupee was at 130.35/37 per dollar, its highest since Oct. 25, 2013, at 0631 GMT, firmer from Friday's close of 130.42/44. It has gained 0.19 percent in the last three sessions through Monday.
"The rupee is in the appreciation trend. We don't see FDI's coming in, but there are inflows like stock-related and other project-related, putting the appreciation pressure on the currency," said a currency dealer asking not to be named.
Dealers said one of the state banks, through which the central bank usually intervenes to direct the market, bought dollars at 130.35 rupees, 5 cents below the Friday's level.
"It looks like they (central bank) had lowered the range from 130.40 to 130.35," the dealer said
Central bank Governor Ajith Nivard Cabraal on Friday told Reuters that the central bank is "giving effect to the present trend in a gradual manner".
Dealers said steady inflows from remittances and exporter conversions amid lack of importer dollar demand led to appreciation in the local currency.
On Thursday, the rupee appreciated 0.08 percent as one of the two state banks, through which the central bank usually intervenes in the market, reduced its buying bid and allowed market forces to determine the level of the rupee. Since then the currency is appreciating.
Many dealers said the rupee would be under upward pressure until credit growth and imports reverse their trends.
Despite a multi-year low interest rate regime, latest data showed private sector credit grew 4.4 percent in February from a year earlier, the slowest expansion since May 2010, while imports in February fell 6.2 percent on year.
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 growth.
The currency has hovered between 130.55 and 130.70 since March 3 through Thursday, Thomson Reuters data showed, with the central bank intervening to smoothen any sharp volatility.
Sri Lanka's main stock index was up 0.45 percent, or 28.23 points, at 6,313.10 as of 0649 GMT. Turnover was at 500.3 million Sri Lanka rupees ($3.84 million), with 29.9 million shares changing hands.
Stockbrokers said many investors have been compelled to return to stock market due to multi-year low interest rates, which has made fixed-income assets less attractive. ($1 = 130.4000 Sri Lanka Rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anand Basu)