Sri Lanka rupee down on importer dollar demand; more downward pressure seen

Last Updated: Tue, Feb 11, 2014 12:10 hrs

COLOMBO, Feb 11 (Reuters) - The Sri Lanka rupee ended weaker on Tuesday due to importer dollar demand despite dollar selling by a state-run bank, and dealers said downward pressure would remain throughout the year if the U.S. Federal Reserve continues to wind down stimulus.

The spot rupee ended at 130.82/85, weaker than its Monday's close of 130.75/80. Dealers said one of the two state banks, through which the central bank directs the market, sold dollars at 130.85 to prevent volatility.

"I think the central bank will hold the rupee at these levels until April and then assess the situation according to inflows," a currency dealer said on condition of anonymity.

"But if the U.S. Treasury yields are going to rise to 3.5 percent in the second half in the event of continuous tapering, then foreign investors in government securities would also might leave and that could put more pressure on the rupee."

The Fed's January decision to cut its monthly bond-buying programme has largely not affected Sri Lanka so far, though some foreign funds have sold a net 4.6 billion rupees ($35.18 million) in stocks in the four sessions through Tuesday.

However, foreign investors bought 15.57 billion rupees ($119.1 million) in the week ended Feb. 5 in government securities, the central bank's latest data showed.

Dealers expect the central bank to keep the currency below 130.85 per dollar until April. Usually, the rupee is under downward pressure in March and early April due to seasonal imports ahead of traditional new year in mid-April.

Five dealers Reuters spoke to said the market is yet to see the impact of inflows from the 15.57 billion rupee foreign buying in government securities as reported by the central bank last week.

Central Bank Governor Ajith Nivard Cabraal on Jan. 27 said Sri Lanka should not experience any major capital outflows or market volatility due to the Fed stimulus cut.

The rupee has gained about 3.3 percent since it hit a record low of 135.20 on Aug. 28. It lost 2.5 percent in 2013. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Anand Basu)

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