COLOMBO, Sept 12 (Reuters) - The Sri Lankan rupee hit a fresh low on Wednesday before ending steady as late dollar sales by banks outpaced demand for the greenback from importers early in the day.
However, the unit was still under downward pressure due to global strengthening of the U.S. currency, traders said.
The dollar was largely unchanged on Wednesday as markets remained cautious over the likelihood of an escalation in the trade conflict between the United States and China in the backdrop of growing weakness in the renminbi, but an index for emerging-market currencies was near a 16-month low hit the day before.
The Sri Lankan rupee touched a fresh low of 162.70 per dollar on Wednesday, surpassing its previous low of 162.65 hit on Thursday, when it hit a record low for the 13th straight session.
Junior finance minister Eran Wickremaratne told Reuters last week that the government would leave it to market forces to decide the level of the rupee.
But the Central Bank on Thursday cut the net open positions of the banks to increase dollar liquidity forcing commercial banks to sell dollars to ease the pressure on the currency.
The local currency ended at 162.35/45 per dollar, unchanged from Tuesday’s close.
Currency dealers have declined to speak to the media since Tuesday citing central bank instructions.
Central Bank Governor Indrajit Coomaraswamy, who is out of the country, late on Tuesday said he was unaware of such a move.
The currency has weakened 0.6 percent so far this month after a 1.2 percent drop last month, and has declined 5.9 percent so far this year. It will be under depreciation pressure due to year-end seasonal importer dollar demand, dealers added.
The currency is also hurt by weakness in the Indian rupee . India is Sri Lanka’s biggest trading partner and the Indian rupee, which also hit a record low on Wednesday, has been one of the worst performers in Asia this year.
Foreign investors sold government securities worth a net 6.44 billion rupees ($39.68 million) in the week ended Sept. 5, extending the net outflow so far this year to 53.3 billion rupees worth of securities, central bank data showed. ($1 = 162.3000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)