COLOMBO: The Sri Lankan rupee traded steady on Tuesday as importer dollar demand offset inward remittances and exporter greenback conversions, while dealers expect forward premiums to fall after the central bank's move to encourage banks to cut their lending rates.
The central bank before the market opened on Tuesday kept its key policy rates steady, but limited commercial banks' access to its repurchase or standing deposit facility, a move analysts see as an effective rate cut.
The spot currency was at 130.30/35 per dollar at 0552 GMT, its lowest since Sept. 12 and steady from Monday's close.
"The spot (rupee) is flat, but across the board interbank money market rates dropped by 50 basis points after the decision," said a currency dealer asking not to be named.
Dealers said the call money rate fell to 6.25 from Monday's 6.75 percent and repo rate to 6.00 percent from Monday's 6.50 percent.
Dealers also said the rupee premiums or forward trade will ease due to a possible foreign outflow from government securities after the central bank's decision to limit commercial banks' access to deposit facility. By 0558 GMT, Sri Lanka's share index was up 0.28 percent, or 20.02 points, at 7,276.43, the highest since June 10, 2011.
"Market is continuing its upward momentum because of the central banks indirect rate cut," said a stockbroker asking not to be named.
"It's good for the market but businesses will not borrow until they see the interest rates bottoming out." Turnover stood at 847 million rupees ($6.50 million), with 42 million shares changing hands.
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