Sri Lanka rupee steady as state banks come to rescue amid importer dollar demand

Last Updated: Thu, Feb 13, 2014 12:30 hrs

COLOMBO, Feb 13 (Reuters) - The Sri Lankan rupee ended steady on Thursday ahead of policy rate decision as state-run banks sold dollars at a flat rate to counter dollar demand from importers and foreign equity outflows, dealers said.

The spot rupee closed at 130.83/87 per dollar, little changed from Wednesday's close of 130.82/85.

Dealers said the two state banks through which the central bank usually directs and intervenes in the market defended the rupee by selling dollars at 130.85 rupees.

"There was importer (dollar) demand ahead of a long weekend, but the two state banks sold dollars to keep the rupee steady," a currency dealer said.

Dealers expect the currency to be under pressure due to lower interest rates that could result in higher imports in March and early April, ahead of the traditional new year in mid-April.

Dealers said the one-year rupee premium has risen by 70 cents since short-term treasury bill yields fell to multi-year lows at a weekly auction on Tuesday.

The broader market expects the central bank to hold its key policy rates at multi-year lows on Monday.

The market is still concerned about the impact of the Fed's decision on gradual reduction in its bond-buying programme, with some dealers saying the rise in the U.S. Treasury yields could prompt foreign investors to pull out their investments in government securities.

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 4.62 billion rupees ($35.31 million) in stocks in the four sessions through Wednesday.

Sri Lanka also witnessed a 2.07 billion rupees ($15.82 million) outflow from government securities in the week ended Feb. 12, compared with a net inflow of 15.57 billion rupees in the previous week, the central bank's data showed.

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

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

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.

Both currency and stock markets will be closed for a Buddhist religious holiday on Friday. Normal trading will resume on Monday. ($1 = 130.8250 Sri Lanka rupees) (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Subhranshu Sahu)

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