COLOMBO May 6 The Sri Lankan rupee closed flat
on Tuesday as stock-related inflows and exporter dollar sales
were offset by late demand for the greenback from importers,
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 Monday's close.
"The rupee was under appreciation pressure, but state banks
bought dollars for oil imports later in the day," said a
currency dealer on condition of anonymity.
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.
Early this year, the central bank intervened to keep the
rupee steady despite sharp volatility earlier this year and has
consistently said it will continue to intervene in the event of
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.
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