COLOMBO, July 17 (Reuters) - The Sri Lankan rupee traded slightly firmer on Monday as exporters sold dollars, although the local currency was seen under pressure due to the central bank’s dollar buying plan, dealers said.
The spot rupee was trading at 153.65/70 per dollar at 0806 GMT, compared with Friday’s close of 153.70/75.
“The market expects the rupee to depreciate further as the central bank is allowing a gradual depreciation,” a currency dealer said asking not to be named.
“We expect a 4 percent depreciation for this year.”
The rupee has fallen around 2.6 percent so far this year.
Central Bank Governor Indrajith Coomaraswamy said the rupee was still “over-valued” and that the central bank was still buying dollars to avoid any appreciation.
“What people don’t understand is an over-valued rupee is subsidy to foreign producer at the expense of local producer. You are actually subsidising foreign exporter and producer of our import substitutes,” he told Reuters on Monday.
He also said the central bank had bought dollars in the range of $750 million to $800 million from the market, out of the $1.2 billion it had planned to purchase in the 10 months from March this year.
The central bank is compelled to buy dollars from the market to meet the reserve target set by the International Monetary Fund under a $1.5 billion, three-year loan programme.
The market has priced in further depreciation due to the central bank’s no-intervention policy to defend the currency, dealers said.
The rupee has been under pressure since early this year after the central bank stopped providing support for the currency at a time when the island nation faces a balance of payments crunch.
The spot rupee resumed trading on June 19 for the first time since May 5, when the central bank fixed its reference rate at 152.50.
Dealers said they expected seasonal demand for dollars to pick up from August.
Meanwhile, Sri Lankan shares edged down 0.4 percent to 6,742.08, as of 0817 GMT, falling from their highest close since Jan. 8, 2016. Turnover was 632 million rupees ($4.1 million). ($1 = 153.7000 Sri Lankan rupees) (Reporting by Shihar Aneez; Editing by Amrutha Gayathri)