COLOMBO: The Sri Lankan rupee ended little changed on Friday, but dealers expect the currency to strengthen further due to lack of strong private credit growth and importer dollar demand amid investors pricing in another policy rate cut in the near future, dealers said.
The rupee closed at 130.21/24 per dollar, compared to Thursday's close of 130.21/22.
"We see rupee further strengthening in the absence of private sector credit and on import demand," a currency dealer said.
The dealer said yield on one-year treasury bill has now fallen to slightly less than the central bank's repurchase rate in the secondary market.
"I think investors are pricing in another rate cut in the near future," he said. Dealers said the central bank's dollar buying from the market has increased rupee liquidity and sent yields on government securities lower amid lack of strong demand for private credit and imports.
The central bank has absorbed more than $750 million from the market to prevent a sharp appreciation in the rupee and support exporters. Dealers said the two state banks bought dollars at 130.21 rupees for imports amid inflows from remittances and exporter dollar sales. The International Monetary Fund (IMF) on Wednesday urged Sri Lanka to limit its intervention in the foreign exchange market.
The IMF said the central bank's intervention may create a perception that the rupee was implicitly fixed and could lead market participants and firms to hold un-hedged foreign exchange risk on their balance sheets.
Finance Secretary P.B. Jayasundera said last week that Sri Lanka was building up its foreign exchange reserves while keeping its currency stable as the island nation sees more dollar inflows.
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