Sri Lanka rupee edges down on importer dollar demand; state bank defends

COLOMBO: The Sri Lankan rupee ended weaker on Thursday on thin importer dollar demand amid greenback sales by a state bank to prevent a further fall in the currency, dealers said.

Dealers still expect the local currency to face upward pressure until demand for imports and credit pick up.

The rupee ended at 130.48/52 per dollar, weaker from Wednesday's close of 130.45/48.

"Rupee is weaker on importer (dollar) demand. A state bank started selling dollars at 130.50 for select banks and that level appears to be the central bank's desired level," said a currency dealer.

Another dealer said one of the two state banks, through which the central bank intervenes to direct the market, sold dollars at 130.50 for select smaller banks.

Ananda Silva, one of the two deputy governors at the central bank, told Reuters on Wednesday that the monetary authority has absorbed over $400 million so far this year to prevent a sharp appreciation in the rupee.

Central bank Governor Ajith Nivard Cabraal told Reuters on Friday that the currency was performing as the bank expected, and there was no pressure to appreciate or depreciate.

Dealers say the central bank's intervention has prevented the gains in the currency and expect it to face upward pressure until credit growth and imports pick up.

While maintaining the policy rate for the fourth straight month last week, Sri Lanka's central bank introduced a new guarantee scheme for gold loans to boost credit growth that fell to a four-year low in March.

Despite multi-year low interest rates, data last week showed private sector credit grew at a four-year low of 4.3 percent in March from a year earlier. It hit a record 35.2 percent in March 2012.

The latest trade data on Monday showed imports have gained 8.2 percent in March, while exports hit a record high of $1.07 billion, helping to narrow the March trade deficit by 15.5 percent compared to a year ago.

Cabraal said on May 19 that private sector credit growth would reverse its trend and pick up to around 15 percent by end-2014 and continue to improve through 2016.