COLOMBO: The Sri Lankan rupee traded a tad weaker on Tuesday as dollar demand by importers surpassed selling of the greenback by exporters and banks, dealers said. The local currency is expected to remain under pressure due to rising imports, they said.
The spot currency was traded at 130.90/131.00 per dollar at 0700 GMT compared to Monday's close of 130.85/90. It was largely untraded last week on moral suasion by the central bank.
"There is importer dollar demand. We have seen some demand from state banks too, probably for the oil bill," a currency dealer said.
Sri Lanka's central bank governor Ajith Nivard Cabraal said during a Reuters' post-budget forum in Colombo on Monday the trend was for an appreciating rupee. He did not elaborate.
President Mahinda Rajapaksa, who is also the finance minister, unveiled the country's 2015 budget on Friday that trims value-added taxes and cuts the deficit, while providing a range of handouts, mainly for rural communities.
"Continued fiscal consolidation is positive, but increases in salaries and subsidies are negative," Standard Chartered Global Research said in a note about the budget.
HSBC in a research note said the actual fiscal consolidation could be weaker than budgeted and that the central bank was likely to stay pat on rates to steady the ship as domestic demand takes the wheel in 2015.
Dealers said the rupee will face downward pressure from lower rates. The central bank's stable exchange rate policy would encourage more imports in the medium term, they said.
If industrial investment is seen after the tax incentives in the budget kick in, it could help the currency remain stable or to even appreciate in the long run, they added.
There was no moral suasion by the central bank on Tuesday, dealers said, after it had last week dissuaded some banks from trading in the spot and three-day currency forwards below a pre-determined level to prevent volatility.
Overseas investors sold a net 30.9 billion rupees ($236.2 million) worth of government securities in the five weeks through Oct. 22, data from the central bank showed.
Sri Lanka's stock market index was up 0.04 percent, or 3.16 points, at 7,224.24 as of 0720 GMT. Turnover was 944.3 million Sri Lankan rupees ($7.22 million), with 32.1 million shares changing hands.
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