August 31, 2016 / 12:25 PM / 3 years ago

Sri Lankan rupee ends steady after cbank head allays fears

COLOMBO, Aug 31 (Reuters) - The Sri Lankan rupee ended steady on Wednesday as importer dollar demand was offset by greenback sales, a day after central bank governor Indrajith Coomaraswamy said the currency was not under upward pressure as capital inflows had not been of sufficient magnitude to exert such pressure.

Dealers said the rupee could appreciate if the central bank does not buy the U.S. dollar from the market since capital inflows into government securities have started and also due to $1.5 billion sovereign bond inflows.

Coomaraswamy told reporters late on Tuesday that the central bank had absorbed a net $600 million from the market since the International Monetary Fund approved a $1.5 billion, three-year loan in June.

“Exchange rate is fairly stable. I don’t think capital inflows have been of sufficient magnitude to exert too much (upward) pressure as yet,” he told reporters in Colombo.

The spot rupee ended steady at 145.55/60 per dollar, while one-week rupee forwards also ended largely unchanged at 145.75/80.

The central bank held its key policy interest rates steady after market hours on Tuesday, saying previous tightening measures are being gradually transmitted to the economy.

“There is hardly any importer dollar demand. We see some exporter conversions and banks selling dollars for foreign investors to buy local bonds,” a currency dealer said asking not to be named.

“Imports are curbed because of the tight monetary policies at the moment.”

Dealers said the central bank was not seen intervening in the market to defend the currency. Central bank officials were not available for comment.

The spot rupee is usually managed by the central bank and market participants use the forward market levels for guidance on the currency.

The central bank has largely not intervened to defend the rupee ever since a dual-tenure sovereign bond issue raised $1.5 billion in July.

Net foreign inflows into government securities jumped 31.4 percent to 302.4 billion rupees ($2.08 billion) through Aug. 24, according to the latest central bank data, since the International Monetary Fund approved a three-year, $1.5 billion loan on June 4. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Sunil Nair)

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