June 21, 2018 / 11:45 AM / a year ago

Sri Lankan rupee rebounds from record low; China port deal fund supports

COLOMBO, June 21 (Reuters) - The Sri Lankan rupee ended marginally firmer on Thursday, pulling away from a record-low, as dollar selling by exporters surpassed importer greenback demand after the island nation received more than half a billion dollars from a Chinese port operator, dealers said.

After market hours on Wednesday, a state-run port authority said that China Merchants Port Holdings has made a $584 million payment as part of a $1.12 billion deal to operate Sri Lanka’s deep sea Hambantota port.

The rupee ended at 159.40/60 per dollar, firmer than Wednesday’s close of 160.00/20.

The spot rupee hit an all-time low of 160.17 per dollar on Wednesday, surpassing its previous all-time low of 160.00 hit on June 14. The currency has declined 3.9 percent this year.

“Despite demand, the rupee ended firmer as we have seen some conversions after the news of $584 million from Hambantota port coming in,” a currency dealer said.

Dealers expect the rupee to trade in the 163-165 range by end of the year.

The International Monetary Fund (IMF) on Wednesday said Sri Lanka’s economy remains vulnerable to adverse shocks because of sizable public debt and large refinancing needs.

Head of the IMF mission to Sri Lanka, Manuela Goretti, after the markets hours on Wednesday told reporters that she expected the Sri Lankan currency to remain under pressure.

“The best response the central bank should implement the fully flexible exchange rate. The exchange rate should be the first line of defence to these external shocks so the rupee should be allowed to depreciate as market conditions have changed,” Goretti said.

“The central banks should only smoothen excess volatility.”

Foreign investors sold government securities worth a net 2.7 billion Sri Lankan rupees ($16.9 million) in the week ended June 13, bringing the outflows so far this year to 22.6 billion rupees, central bank data showed. (Reporting by Ranga Sirilal; Editing by Vyas Mohan)

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