COLOMBO: The Sri Lankan rupee traded steady at its highest in more than a year on Monday as importer dollar demand outpaced inflows from remittances and exporter dollar sales, while state banks' dollar buying curbed any sharp appreciation in the local currency.
The rupee traded flat at 130.20/22 per dollar at 0525 GMT, its highest close since June 26, 2013. "There is import (dollar) demand but it is trading flat with inflows and the state banks buying at 130.20," a currency dealer said.
The one-month forward premium traded a tad weaker at 13/21 cents from its at a near three-year low of 10/20 cents, but dealers expects further gains in the currency. Dealers said dollar-buying by state banks checked sharp gains, though forward premiums were coming down with increased forward selling.
The central bank usually directs the market through the two state banks, but dealers said they were not quite sure if the state banks were buying for the central bank. Central bank officials were not immediately available for comment.
Dealers said the fuel import bill, which accounts for around 20 percent of monthly imports, is also on the decline as the country has been shifting to alternative power sources such as coal and hydro.
The cost of fuel imports fell 35.4 percent in May to $208.9 million, compared with the same month a year earlier. Sri Lanka's trade deficit narrowed by 47.9 percent to $393.4 million in May from $754.9 million a year earlier, mainly due to lower imports, central bank data showed on Monday.
The central bank in a statement on Monday said it has absorbed around $735 million from the domestic foreign exchange market by 10 July.
The central bank kept policy rates steady at multi-year lows for a sixth straight month on Monday as expected, despite private sector credit growth slowing to a 4 1/2 year low.
Sri Lanka's main stock index was 0.02 percent, or 1.29 points, weaker at 6,660.11 at 0534 GMT, further moving away from a 33-month high hit on Thursday. Turnover was 174.2 million Sri Lanka rupees ($1.34 million), with 14 million shares changing hands.
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