COLOMBO: The Sri Lankan rupee traded steady on Monday despite importer dollar demand and stocks-related outflows, as banks were reluctant to trade the local currency beyond 130.70 per dollar due to moral suasion by the central bank, dealers said.
The spot rupee was unchanged at 130.70/75 per dollar at 0640 GMT.
"There is pressure on the currency due to importer dollar demand as well as from stock outflows.
But the spot rupee is quiet because of the moral suasion by the central bank," a currency dealer said on condition of anonymity. Two other dealers said the central bank had asked banks to keep the rupee at the 130.70 per dollar level to reduce volatility.
"We have not changed our policy of not targeting any specific rate," Nandalal Weerasinghe, one of the central bank's deputy governors, told Reuters.
"Perhaps dealers may have their own targets if they say so. Of course, moral suasion is one of the instruments many central banks use to manage short-term volatility." One of the two dealers said a state bank bought dollars to meet importer demand.
A fourth dealer said a foreign bank bought dollars for stocks-related outflows after foreigners sold a net 2.77 billion rupees in stocks on Friday, following a UN resolution to probe alleged war crimes in Sri Lanka. In the absence of spot-rupee liquidity due to moral suasion by the central bank, rupee-cash and spot-next were actively traded at 130.70 and 130.77/79 respectively, dealers said.
Dealers expect the rupee to appreciate from early April, with a dip in importer dollar demand and a rise in inward remittances before the traditional Sinhala-Tamil new year.
The local currency has been largely on the rise ahead of the traditional new year, contrary to market expectations. The rupee usually falls in March and early April due to higher imports ahead of the new year.
Central bank Governor Ajith Nivard Cabraal said on March 19 that the rupee would be stable throughout this year due to increasing inflows from exports and remittances. Dealers said lack of credit demand for imports will help reduce downward pressure on the rupee.
The currency gained 0.25 percent since Feb. 27, but it has fallen 0.08 percent so far this year, Thomson Reuters data showed. At 0645 GMT, Sri Lanka's main stock index was up 0.12 percent, or 6.92 points, at 5,979.09.
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