The Sri Lankan rupee fell 3.9 percent in 2016, with the spot currency reference rate hitting a record low on Friday, as higher imports and private sector credit as well as lower export earnings weighed on the currency throughout the year. Rupee forwards were active, with one-month forwards closing flat at 150.75/85 per dollar as unusual year-end importer dollar demand was offset by dollar selling late in the day by banks, ahead of an announcement on monetary policy by the central bank, dealers said.
One-week forwards, spot-next forwards and the spot rupee weree hardly traded, dealers said On Friday, the central bank raised the spot currency reference rate to a record low of 150.00. The banking regulator has raised the spot reference rate by a total 50 cents this week. That followed a 40 cents increase in the spot reference rate in each of the previous two weeks amid sustained pressure on the currency.
Officials from the central bank were not immediately available for comment. Sri Lanka's central bank is most likely to keep its key interest rates steady on Friday, even as some economists expect further tightening to ease pressure on the rupee following a rate increase by the US Federal Reserve earlier this month, a Reuters poll showed.
Dealers said the market was bracing for some depreciation in the rupee in January after the central bank said last week that depreciation of the currency was not necessarily negative for the economy. "We still see the rupee under pressure. Going into the new year, inflows from borrowing could help ease the pressure," a currency dealer said on condition of anonymity.
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