COLOMBO: Sri Lankan rupee traded slightly firmer on Thursday as exporter dollar sales outpaced importer demand for the greenback, while the market continued to digest the implications of last week’s floods and landslides on the domestic currency, dealers said. The extent of the damage is yet to be assessed, with Sri Lanka’s main agricultural exports – tea and rubber – hit by the worst torrential rains in 14 years due to the cyclone “Mora” formed in the Bay of Bengal.
The floods would have an adverse impact on agricultural exports, putting pressure on the rupee, currency dealers said. Analysts said hospitality and manufacturing sectors are likely to be the worst hit. However, dealers said there is optimism over some inflows from foreign countries, which could help offset expected downward pressure. Rupee forwards <SLKR> were active on Thursday, with spot-next forwards trading at 152.80/95 per dollar at 0611 GMT, compared with Wednesday’s close of 152.85/95 per dollar. “Aid inflows could help the rupee, but the central bank will have to tighten interest rates to curb unnecessary credit growth and inflationary pressure,” said a currency dealer.
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 on May 18 said the bank would allow gradual depreciation of the currency. The spot rupee <LKR=LK> did not trade on Thursday. The central bank fixed the spot rupee reference rate at 152.50 on May 5. Sri Lankan shares <.CSE> were down 0.08 percent at 6,669.02, as of 0615 GMT. Turnover stood at 1.72 billion rupees ($11.28 million).
