COLOMBO: The Sri Lanka rupee traded steady on Monday as dollar inflows from remittances and banks' dollar sales were bought by state banks to prevent possible sharp gains in the local currency, dealers and officials said. Dealers expect the local currency to face upward pressure until demand for imports and credit picks up.
The rupee was traded at 130.35/37 per dollar at 0636 GMT, little changed from Friday's close of 130.35/38 per dollar. Dealers said the two state banks, through which the central bank intervenes to direct the market, bought dollars at 130.35 rupees on behalf of the central bank to prevent sharp volatility in the currency.
The central bank, however, said the dollar buying by the state banks was for oil imports.
"The rupee is under appreciation pressure and the state banks are buying for oil imports. We buy only the excess dollars," said an official at the central bank's International Operations Department on condition of anonymity. Central Bank governor Ajith Nivard Cabraal on Friday told Reuters that the central bank would keep intervening in currency markets to prevent a too-rapid rise in the country's rupee currency while the bank is creating room to cut interest rates further.
He said the country will probably see a tendency for the rupee to appreciate in the next few years, and the central bank is keen that whatever movement takes place happens in a "fairly gradual" manner.
Cabraal also said the central bank does not have "an upper pain threshold" for the rupee, but "more of a volatility tolerance threshold".
Ananda Silva, one of the two deputy governors at the central bank, told Reuters on Wednesday that the monetary authority has absorbed over $400 million as of May 27 of this year to prevent a sharp appreciation in the rupee.
Dealers say the central bank's intervention has prevented gains in the currency and expect it to face upward pressure until credit growth and imports pick up.
While maintaining the policy rate for the fourth straight month in May, Sri Lanka's central bank introduced a new guarantee scheme for gold loans to boost credit growth that fell to a four-year low in March. Cabraal on Friday signalled "a lot a space being created for some more dovish action".
Despite multi-year low interest rates, data on May 5 showed private sector credit grew at a four-year low of 4.3 percent in March from a year earlier.
It hit a record 35.2 percent in March 2012. Sri Lanka's main stock index was up 0.26 percent, or 16.12 points, at 6,279.58 at 0652 GMT. Turnover stood at 543.1 million rupees ($4.16 million), with 34.1 million shares changing hands.
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