Sri Lankan rupee edges up ahead of monetary policy announcement

Last Updated: Wed, Jan 01, 2014 10:50 hrs

COLOMBO, Jan 1 (Reuters) - The Sri Lankan rupee ended a tad firmer on Wednesday as banks sold dollars expecting at least a 50-basis-points cut in the central bank's key policy rates amid a fall in treasury bill yields, dealers said.

The market expects the central bank to cut its key policy rates to multi-year lows on Thursday to stimulate economic growth.

The spot rupee closed at 130.65/75 per dollar, slightly firmer from Tuesday's close of 130.75/90.

"There was forward selling by banks ahead of the rate announcement, expecting at least 50-basis-points cut (in the key policy rates)," a currency dealer said on condition of anonymity.

Yields on treasury bills fell to their lowest since Nov. 11, 2011 at a weekly auction on Wednesday and dealers said the reduction also added pressure on the rupee forward premiums.

Dealers said the three-month forward premium fell by 30 cents while six-month and one-year forward premiums dropped by around 50 cents and 20 cents respectively.

Dealers expect the currency to appreciate in the first quarter of 2014 due to a possible dollar bond inflow, before falling due to lower interest rates pressurising the exchange rate amid a pick-up in importer dollar demand.

The local currency has gained about 3.3 percent since it hit a record low of 135.20 on Aug. 28. It has lost 2.5 percent in 2013 following a 10.7 percent depreciation in 2012. (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)

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