COLOMBO, June 27 (Reuters) - Sri Lanka's central bank sold
dollars in the foreign exchange market to stabilise a sliding
rupee on Thursday as foreign investors continued to pull
out of treasury bonds after the U.S. Federal Reserve last week
confirmed plans to trim its stimulus.
The rupee fell 1.05 percent on Thursday to hit 130.90, its
lowest since Nov. 8, from Wednesday's close of 129.50/55,
weighed down by dollar demand from foreign investors who have
been selling T-bonds in the secondary market, currency dealers
It closed at 130.70/80, falling 0.94 percent on the day.
Dollar assets have become a big lure for investors as the
Fed prepares to dial down its massive bond-buying programme,
which has triggered a huge selloff in emerging market bonds and
currencies in the past week.
However, the rupee recovered to 130.40 as one of the two
state-run banks, through which the central bank usually directs
the market, sold dollars at 130.40, three currency dealers said.
'We intervened in the market to a certain extent,' Nandalal
Weerasinghe, the central bank's deputy governor, told Reuters.
'Apparently, we see demand coming from small bond and
equity-related selling. We absorbed 100 percent of the bond
inflows. So we have some responsibility to smoothen the market
when they are selling, in a way to stabilise the market. We have
the space to supply dollars. The bond sales were around $2-$3
Currency dealers said the absence of exporter selling
aggravated the shortage of dollars amid importer panic buying
seen on forwards.
'Until emerging markets stabilise, the depreciation pressure
on the rupee will remain. It can be 2-3 rupees per dollar even
with central bank intervention,' said one dealer on condition of
Foreign investors hold over $3.6 billion in treasury bills
and bonds, central bank data showed.
The central bank, which has repeatedly said it would
intervene in periods of excessive volatility, on Wednesday said
it will maintain flexibility in the rupee exchange rate despite
the currency's weakening trend.
Dealers said a 2 percentage-point cut in commercial banks'
statutory reserve ratio (SRR) by the central bank earlier would
have also prompted foreigners to either take profits or change
positions to go for short-tenure securities.
The rupee hit a record low of 134.30 on June 28, 2012, after
the central bank moved to a flexible rupee exchange rate regime
in February last year.
It has fallen 1.4 percent so far this week and 3.3 percent
through this month.
The currency depreciated 10.7 percent in 2012.
Sri Lanka's main stock index edged up 0.64 percent,
or 38.68 points, to 6,111.36, ending a four straight session
falling streak and recovering from its lowest close since May 3
hit in the previous session.
Investors picked up banking shares, but stockbrokers said
concerns over a possible pullout by more foreign funds dented
Foreign selling accounted for 72.3 percent of the day's
turnover of 1.31 billion rupees ($10.11 million), more than this
year's daily average of around 1 billion rupees.
Foreigners bought stocks worth 451 million rupees on
Thursday, while net foreign outflows were 496.6 million rupees,
extending the total outflows to 1.17 billion rupees in the last
($1 = 129.6000 Sri Lanka rupees)
(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Shri
Navaratnam and Prateek Chatterjee)
Keywords: MARKETS SRILANKA/
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