COLOMBO: Sri Lankan rupee forwards traded steady on Tuesday as mild importer dollar demand offset selling of the greenback by banks, while a statement from the International Monetary Fund urging the country to reduce its fiscal deficit weighed on sentiments, dealers said.
Rupee forwards have been active since Jan. 27 as there has been little trading in spot currency, with banks reluctant to trade below the 144.00 level amid moral suasion by the central bank.
One-week rupee forwards, which act as a proxy for spot, were steady at 144.28/35 per dollar at 0545 GMT.
"The rupee will be under pressure when imports start to pick up again," said a currency dealer asking not to be named.
The IMF on Friday urged Sri Lanka to take steps to reduce its fiscal deficit and raise tax revenues to help improve its balance of payments.
Dealers said interest rates and local taxes would rise in the near future if the government implements IMF's recommendations.
Most dealers said an increase in interest rates and taxes will help reduce the pressure on the exchange rate and IMF's backing through a loan would help instil confidence in foreign investors in the long term.
They said the central bank would not be able to hold the rupee at the current level without strong dollar inflows.
The central bank usually intervenes in times of high volatility though it floated the rupee on Sept. 4.
The rupee is under pressure despite a 150-basis-point increase in commercial banks' statutory reserve ratio from Jan. 16. The central bank kept its key policy interest rates unchanged on Jan. 25.
Sri Lanka's main stock index was 0.21 percent weaker at 6,388.04 at 0548 GMT. Turnover stood at 229.6 million rupees ($1.59 million)
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