COLOMBO: The Sri Lankan rupee ended slightly weaker on Friday as importer dollar demand outpaced selling of the U.S. currency by exporters and a state-run bank, while investors assessed the extent of damage to the economy from last week’s floods and landslides, dealers said.
The country’s main agricultural crops – tea and rubber – were hit by the worst torrential rains in 14 years. Damage to agricultural exports would put pressure on the rupee, currency dealers said. Analysts said the hospitality and manufacturing sectors are likely to be the worst hit. However, dealers said there was some optimism over expected inflows in the form of international assistance, which could help offset potential downward pressure on the local currency. Rupee forwards were active on Friday, with spot-next forwards closing at 152.85/95 per dollar, compared with Thursday’s close of 152.80/90 per dollar. “Importer dollar demand was there today. A state bank bought dollars at 152.85 rupees, probably to pay oil bills, while the other state bank sold dollars at 152.90,” said a currency dealer.
Dealers said the aid inflows could help the rupee, but the central bank will have to tighten interest rates to curb unnecessary credit growth and inflationary pressure. The floods could hurt the overall economic growth and also widen the government’s budget deficit with high infrastructure spending, dealers said. The rupee has been under pressure after the central bank governor said on May 18 that the bank would allow gradual depreciation of the currency. The spot rupee did not trade on Friday. The central bank fixed the spot rupee reference rate at 152.50 on May 5. Foreign investors bought a net 740 million rupees ($4.86 million) worth of government securities in the week ended May 31. They have sold a net 41.33 billion rupees worth of securities so far this year.
