The Sri Lankan rupee ended weaker on Monday a day ahead of the central bank's rate announcement, hurt by dollar demand from importers on fears that economic policies of US President-elect Donald Trump may lead to a rise in the greenback and trigger foreign fund outflows. Dealers said investors are waiting to see the central bank's direction on interest rates at the policy rates announcement on Tuesday. Analysts expect the central bank to leave rates steady for a fourth straight month.
Dealers also said foreign investors might pull out of emerging markets, including Sri Lanka, if the US Federal Reserve raises interest rates next month. The dollar and US bond yields fell on Monday as investors reversed a "Trumpflation" trade that has gripped markets since the US elections, after oil prices slid on fears that producer countries meeting this week could fail to agree an output cut.
Sri Lankan rupee forwards were active, while spot-next forwards ended at 149.20/40 per dollar, compared with Friday's close of 148.90/149.00. The spot rupee was hardly traded, but was quoted at 148.20/149.20. The central bank lowered the spot rupee reference rate to 147.95 per dollar on November 18, from 147.75 earlier. "The (dollar) buying interest was there. We have seen significant exporter conversions too, but the demand was more today," said a currency dealer, asking not to be named. "This trend will continue till the end of the month." Finance Minister Ravi Karunanayake said on Thursday that "turbulent times" were the reason for the rupee volatility, adding it was driven by sentiment.