COLOMBO: The Sri Lankan rupee hovered near a one-week low on Tuesday on importer demand for the greenback, despite dollar selling by a state bank to prevent the fall, dealers said, a day after foreign investors cashed in gains on stocks and bonds.
The spot rupee was trading at 130.85/88 per dollar at 0604 GMT its lowest since Jan. 22 and weaker from Monday's close of 130.78/85 per dollar.
"A state bank was selling dollars at 130.85," said a currency dealer. Central Bank Governor Ajith Nivard Cabraal said on Monday Sri Lanka should not experience any major capital outflows or market volatility in the event the US Federal Reserve scales back its stimulus more.
However, dealers said a Fed decision to cut the stimulus further will have an impact on the local currency interest rates.
"The dollar will give a better earning. So there is a possibility of rupee depreciation," the dealer said. Dealers said the rupee is expected to fall in the absence of any intervention by the central bank due to importer dollar demand.
The central bank said on Jan. 20 inflows of $1 billion from a recent sovereign bond sale would be kept in reserve, contrary to market expectations that a part of the bond proceeding would be allowed to be traded in the market.
The central bank had said on Jan. 2 it expected the rupee to strengthen in the medium term and any direct intervention in the foreign exchange market would be minimum.
The rupee has gained about 3.3 percent since it hit a record low of 135.20 on Aug. 28. It lost 2.5 percent in 2013.
By 0605 GMT, Sri Lanka's main stock index was down 0.05 percent, or 3.31 points, at 6,242.50, further moving away from a seven-month high hit on Friday.
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