COLOMBO: The Sri Lankan rupee edged down to a near three-month low on Tuesday due to light importer dollar demand, with the market expecting downward pressure on the currency to continue ahead of festival import demand in April, dealers said.
The spot rupee was traded at 131.05/10 per dollar at 0545 GMT, its lowest since Dec. 3, and a tad weaker from Monday's close of 131.00/10.
Dealers said one of the two state banks, through which the central bank usually directs the market, defended the rupee by selling dollars at 131.05.
"I don't think the depreciation will go out of proportion as the central bank has the muscle to defend the rupee with strong reserves," a currency dealer said on condition on anonymity.
"I think the rupee would gradually depreciate to 131.60 by the end of the first quarter due to seasonal imports."
On Thursday, the currency breached the 130.85 level, which dealers said the central bank had been defending for two months through buying and selling of dollars via two state banks. The market expects a slight depreciation in the local currency in the near future due to rising seasonal importer demand for dollars. It is usually under pressure in March and early April, ahead of the traditional new year in mid-April.
The rupee has also been under pressure due to foreign outflow from equities and government securities in the past two weeks, data showed.
Foreign investors had sold a net 2.32 billion rupees worth of government securities in the week ended Feb. 19, while they dumped 5.29 billion rupees in stocks in the 12 straight sessions through Monday.
The market and analysts have been concerned about the sustainability of the central bank's policy measures to maintain a stable exchange rate, which is defended via selling and buying dollars, in a low-interest-rate regime.
Currency dealers and traders say the central bank's policies should work until the market sees a jump in private sector credit growth, which rose 7.5 percent year-on-year in December from 7.3 percent a month earlier.
The rupee has gained about 3.16 percent since it hit a record low of 135.20 on Aug. 28 last year. It lost 2.5 percent in 2013.
At 0553 GMT, Sri Lanka's main stock index was down 0.5 percent, or 29.60 points, at 5,853.45, trading at its lowest level since Dec. 27 and heading for a ninth straight session of decline.
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