COLOMBO, June 18 (Reuters) - The Sri Lankan rupee fell for the first time in 10 sessions on Wednesday, slipping from the previous session’s near-one-year high, on dollar demand from importers after the central bank held interest rates steady at multi-year lows, dealers said.
Demand for the greenback from importers surpassed inward remittances, dealers said.
The rupee ended at 130.26/30 per dollar, weaker from Tuesday’s close at 130.22/26, its highest since June 26 last year.
The central bank kept policy rates steady at multi-year lows on Wednesday for a fifth straight month as it expects lending to pick up in the second half of 2014.
“We expect the bids to come down further with lower imports,” a currency dealer said on condition of anonymity.
The central bank in a statement said it did not see much demand for imports in April, while private sector credit growth contracted 3.3 percent year-on-year in the same month, its worst performance since January 2010. It had risen 4.3 percent in March.
“In view of the increased foreign currency inflows, the central bank has also absorbed around $550 million from the domestic foreign exchange market,” the central bank said.
Early in the day, one of the two state banks, through which the central bank directs the market, bought dollars from select banks at 130.23 rupees, before the currency fell due to importer dollar demand, dealers said.
The central bank bought dollars at 130.35 rupees on May 30 but started reducing its buying from then, allowing a gradual appreciation in the rupee.
Central bank governor Ajith Nivard Cabraal told Reuters on June 6 that the rupee was facing appreciation pressure. The bank was condoning the trend on a gradual basis to allow all stakeholders to adjust to the changes.
Cabraal had said earlier that the central bank would keep intervening in the currency market to prevent a rapid rise in the rupee.
Dealers said the central bank’s intervention has prevented gains in the currency and they expect the rupee to face upward pressure until credit growth and imports pick up. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Sunil Nair)