COLOMBO: The Sri Lankan rupee was trading weaker on Monday due to importer demand for US dollars, with currency dealers forced to trade in the short-term forward market in the absence of an active spot-dollar market, currency dealers said.
The spot rupee was quoted at 131.75/95 per dollar at 0630 GMT, currency dealers said, weaker from Friday's close of 131.65/75.
"Spot is not trading but there are quotes. It was the spot next which is trading actively," said a currency dealer asking not to be named.
The spot next or one-day forward traded at 131.85/132 per dollar.
Some dealers said they have moved to one-day forwards instead of spot trade after the central bank sold one-day forwards at 131.60 rupees per dollar for selected banks.
An official at the central bank's International Operations Department said the bank will intervene at excess volatility in the market and declined to comment whether the central bank is defending the currency on Monday.
"What we do is if there is any excess volatility in the market, we would be intervening. But otherwise, we are not. We haven't seen it (excess liquidity) yet," the official told Reuters.
The central bank on Friday kept its key monetary policy rates steady as expected and said wide fluctuations of currencies of trading partners and competitors in the international market "would need to be closely monitored in order to address any adverse effects on Sri Lanka's external balance in the period ahead".
The rupee fell around 4 percent between June 7 and July 18, after foreign investors started pulling out of Sri Lanka's treasury bonds due to a rise in US treasury yields on expectations of a winding down of monetary stimulus by the Federal Reserve.
The currency has been steady around 131.60 since then as the central bank has not allowed the spot to be traded beyond 131.60.
The central bank's latest data showed foreign holdings have fallen 1 percent to 498.3 billion Sri Lanka rupees ($3.78 billion) between July 31-Aug. 14.
The central bank has not published data on foreign holdings in long-term T-bonds and T-bills separately since June 28 after foreign investors started to pull out from T-bonds.
Sri Lanka's main stock index was 0.06 percent, or 4.01 points firmer at 6,237.22 at 0644 GMT.
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