April 18, 2018 / 10:46 AM / 5 months ago

UPDATE 1-Sri Lanka rupee hits record low - dealers

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COLOMBO, April 18 (Reuters) - The Sri Lankan rupee hit a record low of 156.50 per dollar on Wednesday as importers’ demand for dollars weighed on the local currency, dealers said.

The move was aggravated by a lack of dollar sales by exporters due to extended holidays, dealers added.

Three dealers confirmed that the rupee traded at 156.50 per dollar, after hitting a previous all-time low of 156.35 on Tuesday.

“No banks want to sell dollars as everybody is tight (lacking dollar liquidity). Most of the exporting firms are still closed after the New Year celebrated over the weekend,” a currency dealer said asking not to be identified.

The rupee has weakened 0.5 percent so far this week and nearly 2 percent so far this year, after depreciating 2.5 percent last year and 3.9 percent in 2016.

The central bank has been buying dollars to build its reserves and repay some debts. It has bought around $400 million from the market in the first three months of this year.

A $2.5 billion inflow from a two-tranche sovereign bonds sold last week was expected to boost the currency this week. However, dealers said central bank buying of the bond inflows will prevent any upward pressure on the currency.

A gradual depreciation in the rupee and higher volatility are expected this year on account of debt repayments by the government, according to dealers.

The $81 billion economy can expect foreign currency outflows of $6.4 billion in the next 12 months including loans, securities, and deposits, compared with the current $7.9 billion in foreign exchange reserves, according to the latest official central bank data.

The International Monetary Fund said in March that Sri Lanka’s economy remained vulnerable to adverse shocks due to its large public debt and low external buffers.

The government must repay an estimated 1.97 trillion rupees ($12.68 billion) in 2018 - a record - including $2.9 billion of foreign loans and a total of $5.36 billion in interest. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Vyas Mohan and Kim Coghill)

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