COLOMBO: The Sri Lankan rupee traded slightly weaker in dull trade on Monday as importer dollar demand surpassed greenback sales due to inflows from remittances, dealers said. Rupee forwards were active, with two-week forwards trading at 151.85/95 per dollar at 0635 GMT, compared with Friday’s close of 151.80/90. “Today is a very dull day. The import demand is there after the weekend but we can see some (inward) remittances,” said a currency dealer on condition of anonymity. “If we don’t get to see steady inflows, the rupee will be under pressure due to seasonal import demand and drought.” Dealers said the rupee would be under pressure due to dollar demand from importers ahead of the traditional Sinhala-Tamil New Year in mid-April, and as foreign investors continue to sell government securities.
Ratings agency Moody’s said in a report that lower agricultural exports and higher imports to make up for the loss in domestic production would weigh on the current account deficit and foreign exchange reserves. The government’s handouts to farming families affected by drought could make the fiscal deficit target a challenge, Moody’s added. Lower agricultural output due to the drought will force the government to increase imports, dealers said. For further imports, the government needs more U.S. currency while there will be fewer dollars coming in from agriculture commodity exports. Both will increase the demand for the greenback and put pressure on the rupee.
Finance Minister Ravi Karunanayake on Friday denied Moody’s report and said the worst drought to hit Sri Lanka in 40 years may cost the government up to 40 billion rupees ($264.7 million), but it should not worsen the fiscal deficit. Foreign investors bought a net 701 million rupees ($4.64 million) worth of government securities in the week ended March 1 recording its first net inflow for the year. But they have sold a net 63.76 billion rupees such instruments so far this year. Sri Lanka could face balance-of-payments pressure due to foreign outflows from government securities, a government document showed last month, even as the island nation was in the process of raising up to $2.5 billion from foreign borrowing. The rupee has weakened 1 percent so far this year. It fell 3.9 percent last year, following a 10 percent drop in 2015. Sri Lankan shares were up 0.03 percent at 6,103.40, as of 0637 GMT. Turnover stood at 279.5 million rupees ($1.85 million).
