COLOMBO: Sri Lankan rupee forwards traded steady on Wednesday as dollar inflows from remittances offset importer demand for the greenback, but trading was thin as the market awaited cues on the direction of interest rates, dealers said.
Actively traded two-week rupee forwards were steady at 133.75/85 per dollar at 0623 GMT.
"The remittances are there and they are picking up slowly," said a currency dealer on condition of anonymity.
The central bank, however, prevented a fall in the spot rupee and one-week forwards at 132.90/133.20 and 133.60/75, respectively, within the limits set by it.
Central bank officials were not available for comment.
Local conditions have turned tighter due to a strong rupee and they imply a negative impact on output and prices down the road and the solution is not to ease policy rate or a nominal devaluation of the rupee, Prithviraj Srinivas, an economist at HSBC Global Research, said in a market report.
"We think the appropriate policy response is to use the opportunity provided by the terms of trade improvement to pursue structural reforms that make the tradable sectors more competitive and expand tradable goods and services in the economy," Srinivas said.
Dealers said the market was awaiting cues on the direction of interest rates at a weekly auction later in the day after yields on t-bills fell between 31 and 44 basis points at a weekly auction last Wednesday, after having spiked by 112-124 basis points in two previous weekly auctions.
They said a probe into all bond auctions since 2012 is also hurting sentiment.
Sri Lanka has launched a probe into allegations of corruption in government bond sales held by the central bank since 2012 after opposition parties called for an independent investigation into a February bond auction.
The main stock index was 0.25 percent lower at 6,980.76 at 0622 GMT, close to a seven-months low. Turnover was 1.66 billion rupees ($12.49 million).
Stockbrokers expect the market to be in the red until the political situation stabilises even after Sri Lankan President Maithripala Sirisena formed a national government on Sunday.
Sirisena, incorporating the main opposition party, has formed a national government in a bid to push through reforms and preserve political stability.
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