COLOMBO: The Sri Lankan rupee traded steady on Monday on moral suasion by the central bank, with the market expecting the downward pressure on the currency to ease due to government borrowing amid rising interest rates.
"The rise in interest rate and heavy demand for the rupee by the government will ease the pressure. Exporters will start converting dollars when the rise in the interest rates become attractive to convert their dollars into rupees," a currency dealer said on condition of anonymity.
"But exporters are still waiting to see a further rise in the interest rates."
Actively traded one-week forwards were traded steady at 133.60/75 per dollar at 0655 GMT, on moral suasion by the central bank.
Central bank officials were not available for comment.
The spot currency was also steady at 132.90/133.20 for a ninth straight session, well within the limits set by the central bank.
Dealers said some banks sold dollars to cover their net opening position.
The central bank plans to raise 50 billion rupees ($376.36 million) through government securities this week, its said on its website.
The central bank removed a penalty rate of 5 percent on its repo rate with effect from March 2. The bank had imposed the penalty in September to discourage commercial banks from parking money with it at an interest rate of 6.5 percent.
The scrapping of the penalty resulted in a rise of between 86 basis points and 91 basis points in t-bill yields last Tuesday.
Central Bank Governor Arjuna Mahendran said last Thursday that the country's foreign reserves were on the rise, indicating that the bank was not intervening as aggressively in the forex market as earlier.
He said Sri Lanka's foreign reserves have increased to over $7 billion, from $6.3 billion in January.
The main stock index was down 0.53 percent, or 38.25 points, at 7,145.25 at 0733 GMT. Turnover was 582.9 million rupees ($4.39 million).
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