COLOMBO: Sri Lankan rupee forwards ended weaker on Friday due to importer dollar demand amid a rise in bond yields, while the central bank said it would scrap a lower repo penalty rate of 5 percent from March 2.
Bond yields went up on the central bank's surprise decision and on expectation it would raise overnight rates, said bond dealers.
"The decision will ease the pressure on the rupee," said a currency dealer.
One-week forwards, which were actively traded, ended at 133.65/75 per dollar, compared with Thursday's close of 133.40/45. Two-year bond yields gained 20 basis points and five- to eight-year bond yields went up by 50 basis points each, they said.
The spot currency was steady at 132.90/133.10 per dollar for a sixth straight session, keeping to the limits set by the central bank.
Central bank officials were not immediately available for comment.
Market players are worried there could be further depreciation despite Finance Minister Ravi Karunanayake's statement on Wednesday that Sri Lanka would defend the currency and that the country has enough foreign exchange reserves to prevent any further fall, dealers said.
Central Bank Governor Arjuna Mahendran said on Thursday that foreign currency reserves were stable after it spent over $1 billion in January to defend the rupee, and ample dollar inflows would enable it to cover the country's repayments.
The central bank had defended the spot currency at 132.80 since Feb. 6 through Feb. 18, before allowing it to fall 10 cents against the dollar on Feb. 19.
The rupee has fallen 1.4 percent this year through Feb. 20 due to higher imports, the central bank said on Tuesday.
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