COLOMBO: The Sri Lankan rupee traded steady on Thursday in dull trade, a day after the central bank governor said short-term interest rates seem to be bottoming out while there is little scope for long-term lending rates to come down.
The rupee was trading at 130.20/23 per dollar at 0821 GMT, little changed from Wednesday's close of 130.19/23.
"There was no move in the rupee, but the bonds were active after the governor's comments," a currency dealer said on condition of anonymity.
Central bank governor Ajith Nivard Cabraal said rejecting all bids for short-term 91-day T-bills at an auction on Wednesday was an indication that the sharp drop in the past several months is now "seeming to be bottoming out".
Last week, the yield in 91-day T-bill fell to a multi-year low of 6.19 percent.
"It seems that it is stable at around those levels," Cabraal said in a foreign correspondents' forum late on Wednesday.
He also said the central bank would intervene in the market for stability of the rupee.
"It's a thin market. We intervene because we don't want the market to get disturbed with a single transaction whether its an inflow or outflow."
Dealers said the rupee would be unaffected due to the central bank intervention, but yields in longer term bonds could fall and some foreigners may sell.
Cabraal, however, at the forum said there is a strong demand for the Sri Lankan government bonds and if anybody exit, there are investors to buy the papers.
Dealers said two state banks, through which the central bank usually intervenes in the market, have been buying dollars at 130.20 per dollar and were not sure if they were buying on behalf of the central bank.
The central bank has absorbed $1.09 billion from the market, a central bank official said on Wednesday, to keep the rupee steady and prevent sharp appreciation as well as excess volatility in the rupee.
Sri Lanka's main stock index was up 0.31 percent, or 21.86 points, at 7,021.83 at 0831 GMT, hovering near its highest level since Aug. 9, 2011.
Turnover was 1.29 billion rupees ($9.91 million), with 204.1 million shares changing hands.
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