May 6, 2014 / 11:26 AM / in 5 years

Sri Lankan rupee ends steady amid upward pressure from inflows

COLOMBO, May 6 (Reuters) - 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 said.

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 excess volatility.

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 Basu)

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