COLOMBO, May 6 (Reuters) - The Sri Lankan rupee edged up on Tuesday in dull trade due to stock-related inflows and exporter dollar sales while dealers expect the currency to be stable in the near term until private sector credit demand and imports pick up.
The spot rupee was traded at 130.58/64 per dollar at 0552 GMT, a tad firmer from Monday’s close of 130.60/61.
“The pressure is to appreciate, it could even trade below 130.00 per dollar if the steady inflows continue,” said a currency dealer.
“Buying dollars is an expensive exercise at the moment because it increases rupee liquidity and tends to reduce interest rates further in a situation where you do not see credit and imports picking up.”
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 5.5 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.
Sri Lanka’s main stock index was up 0.05 percent, or 3.43 points, at 6,252.86 as of 0622 GMT. Turnover was at 441.8 million rupees ($3.38 million), with 20.7 million shares traded. ($1 = 130.6100 Sri Lanka Rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Anupama Dwivedi)