COLOMBO: The Sri Lankan rupee ended steady in dull trade on Tuesday due to moral suasion by the central bank, while dealers expect downward pressure on the currency to ease due to higher government borrowing amid rising interest rates.
Exporters will start converting dollars into rupees when the rise in interest rates becomes attractive, they said. Actively traded one-week forwards ended steady at 133.60/75 per dollar on moral suasion by the central bank.
Central bank officials were not available for comment. "Everybody is looking at the bond market," a currency dealer said on condition of anonymity.
The central bank accepted 51.8 billion rupees ($389.77 million) worth of treasury bonds on Tuesday, 72.8 percent higher than it offered. It borrowed $156.5 million through development bonds on Monday.
The central bank also plans to raise 20 billion rupees ($150.49 million) through t-bills on Wednesday.
The spot currency was steady at 132.90/133.20, for the 10th straight session, well within the limits set by the central bank.
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 on March 3.
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.
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