COLOMBO: The Sri Lankan rupee traded weaker on Wednesday on importer dollar demand while moral suasion by the central bank prevented a further fall in the local currency, dealers said.
Dealers said the market expects the local currency to face more pressure due to rising imports and lower rates. The central bank's stable exchange rate policy would encourage more imports in the medium term, they said.
The spot currency was quoted at 130.90/131.05 per dollar at 0817 GMT compared to Tuesday's close of 130.90/131.00. It was largely untraded last week on moral suasion by the central bank.
Dealers said three-day forward or spot next was actively traded in the absence of spot trade. Spot next was traded at 131.00/131.10 per dollar with compared to Tuesday's close of 131.00/131.05.
"The importer demand is there and the spot is not trading due to the moral suasion," a currency dealer said.
Central bank officials were not available for comments. But on Tuesday, an official at the central bank's International Operations Department on condition of anonymity said the monetary authority does not dictate terms to the market.
If industrial investment is seen after the tax incentives in the budget kick in, it could help the currency remain stable or even appreciate in the long run, dealers said.
Sri Lanka's central bank governor Ajith Nivard Cabraal said during a Reuters post-budget forum in Colombo on Monday that the trend was for an appreciating rupee. He did not elaborate.
The central bank had last week dissuaded some banks from trading in the spot and three-day currency forwards below a pre-determined level to prevent volatility.
Overseas investors sold a net 30.9 billion rupees ($236.2 million) worth of government securities in the five weeks through Oct. 22, data from the central bank showed.
Sri Lanka's stock market index was up 0.57 percent, or 41.45 points, at 7,268.57 as of 0823 GMT.
Turnover was 1.78 billion rupees ($13.61 million), with 63.8 million shares changing hands.
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