COLOMBO, Jan 3 (Reuters) - The Sri Lankan rupee traded firmer on Friday due to inflows on a day of dull trade, dealers said, a day after the central bank cut its reverse repurchase rate and said it expected the rupee to gain in the medium term.
Dealers also said the bond market was active after the central bank slashed the standing lending facility rate by 50 basis points to 8 percent before the market opened on Thursday, in a move to reduce commercial banks’ interest rate spreads.
The spot rupee was trading at 130.66/71 per dollar at 0535 GMT, stronger than Thursday’s close of 130.70/75.
“The rupee is appreciating due to the positive sentiment following the rate cut and the central bank’s road map for 2014,” a currency dealer said on condition of anonymity.
Revealing the 2014 financial and monetary policies, central bank Governor Ajith Nivard Cabraal said the monetary authority expects the rupee to strengthen in the medium term due to improvement in capital inflows.
Cabraal also said the central bank’s direct intervention in the foreign exchange market will be at a minimal level and only if there are signs of excessive fluctuation.
Dealers expect the currency to appreciate in the first quarter of 2014 due to possible dollar-bond inflows.
The local currency has gained about 3.4 percent since it hit a record low of 135.20 on Aug. 28. It lost 2.5 percent in 2013 following a 10.7 percent depreciation in 2012.
At 0623 GMT, Sri Lanka’s main stock index was up 0.39 percent, or 23.19 points, at 5,991.23, its highest since Aug. 23. (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Prateek Chatterjee)