COLOMBO: Sri Lanka's central bank intervened in the currency market on Friday, selling dollars to stabilise the rupee after it had fallen to a more than six-month low.
"We have done a limited intervention, because I think there is some unnecessary speculation," Central Bank Governor Ajith Nivard Cabraal told Reuters. "We have stabilised the market."
The rupee had sunk to a 129.00/129.10 per dollar in early trade, its lowest since Dec. 4, as foreign investors sold bonds as part of a broader sell-off in emerging markets on fears that loose global monetary conditions were about to end.
The currency recovered some ground after intervention to close at 128.50/60, still 0.39 percent weaker than Thursday's close of 128.00/10. It has fallen 1.6 percent this week.
Two dealers said the lowest deal was done at 129.05.
"The rupee is weakening on demand for dollars from foreigners who are selling rupee bonds," one dealer said.
Regional markets have been rocked by uncertainty on whether the US Federal Reserve would dial back its massive stimulus later this year, forcing investors to cut back on assets seen as risky.
Dealers said one of two state-run banks, through which the central bank usually directs the market, sold dollars at 128.75 and the move calmed down the market.
The rupee has weakened 0.8 percent so far this year following a 10.7 percent depreciation in 2012 as the central bank opted for a flexible exchange rate regime in February 2012.
Sri Lanka's main stock index edged up 0.19 points, or 11.52 points, to 6,219.39 in thin volume as local investors bought blue chips. On Thursday, the index hit its lowest close since May 14.
The market witnessed a net foreign outflow of 81.9 million rupees ($640,600). But foreigners have been net buyers of 16.03 billion rupees worth shares so far this year.
The day's turnover was at 577.2 million rupees, more than half of this year's daily average of 1.03 billion rupees.
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