COLOMBO: Sri Lankan rupee forwards ended weaker on Wednesday on importer dollar demand after the central bank in a surprise move cut key monetary policy rates and dealers expect more downward pressure on the local currency.
Actively traded one-week forwards ended at 133.58/62 per dollar, down from Friday's close of 133.45/52. Two-week forwards ended at 133.78/85 from Friday's finish of 133.60/70.
The markets were closed on Monday and Tuesday for the Sinhala-Tamil New Year.
"Import demand is picking up and there will be tremendous downward pressure on the rupee," said a currency dealer on condition of anonymity.
"It will be cheaper for exporters to hold on to dollars and borrow in rupee due to lower interest rate. People also will try to borrow more for personal consumption. So there will be pressure on the rupee to depreciate."
However, Finance Minister Ravi Karunanayake said there are sufficient funds to defend the currency and a lot of foreign inflows are expected.
"There won't be any wasteful expenditure by the government. Financial discipline has now been brought into the system," he told Reuters over the phone.
Currency dealers said bond yields fell between 40 bps and 50 bps across all tenures after the policy rate cut.
The central bank through moral suasion prevented the spot rupee from dropping below 132.90/133.20, a limit it set in February.
Central bank officials were not immediately available for comment.
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