Sri Lankan rupee forwards ended steady on Friday as late inward remittances and exporter dollar conversions offset importer dollar demand amid growing uncertainty after the announcement of new tax hikes, dealers said. One-week rupee forwards, which act as a proxy for the spot currency, ended steady at 145.55/65 per dollar. The spot did not trade below 143.90, seen as the central bank's desired level.
Dealers also said policy uncertainty is deepening with the new taxes, and the capital gains tax may discourage foreign investors. Sri Lanka will raise value added tax (VAT) and reintroduce capital gains tax to break out of a debt trap, ahead of talks on a $1.5-billion loan it is seeking from the IMF. The downgrade will be of concern to international investors and market players, analysts said, adding it would push up the cost of government borrowings in the international market, putting pressure on the rupee.