COLOMBO: The Sri Lankan rupee edged lower on Tuesday morning due to mild importer dollar demand, but traders said inflows from a recent large offshore bond sale by a state bank contained the downside.
The rupee spot traded at 132.15/20 by 0459 GMT, compared with Monday's close of 132.05/10.
Many dealers expect the rupee to hold steady around the 132.25 level due to inflows from the National Savings Bank's $750 million 5-year bond issue.
"We expect the rupee to stay at these levels in the short term with the NSB bond money coming in," a dealer said.
However, he said the rupee could falter in the medium term, noting the recent pressure caused by the absence of steady dollar inflows from exports and remittances from overseas workers.
The currency hit a record low of 135.20 on Aug. 28, but has managed to stem further losses since then. It has fallen 3.6 percent this year, after depreciating about 10 percent in 2012.
The rupee has been falling since early July when foreign investors started pulling out of local bonds as US Treasury yields rose in anticipation of the US Federal Reserve trimming its stimulus.
In the event, the Fed surprised markets last week by keeping to the current $85 billion-a-month bond-buying programme, helping to steady the rupee and other risk-sensitive currencies globally.
Foreign holdings in Sri Lankan government securities hit a more than six-month low last week after falling for four straight weeks.
An official at the central bank's public debt department said foreign holdings fell 5.47 percent in the four weeks ended Sept. 17 to 475.92 billion rupees ($3.60 billion), the lowest since March 6.
Central bank Governor Ajith Nivard Cabraal said earlier this month that foreign holdings in government securities are still above the maximum 12.5 percent of the total outstanding T-bills and T-bonds that foreigners are allowed to hold.
Sri Lanka's main stock index was up 0.2 percent at 0504 GMT. It had hit a more than eight-month low on Sept. 9.
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