Wednesday, December 11, 2019
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Sri Lanka currency seen falling on lower interest rates

COLOMBO: The Sri Lankan rupee ended steady as heavy foreign outflow from equity was offset by exporter dollar sales in the absence of intervention by state banks, but dealers expect the currency to ease further on lower interest rates.
The spot rupee ended at 130.60/70 per dollar, little changed from Thursday’s close of 130.65/67.
“From here, we expect the rupee to gradually depreciate due to interest rate difference between the local and cross currency and no real inflows seen coming in,” a currency dealer said.
Another currency dealer said the equity sell-off by foreigners, as in other emerging markets after the US Federal Reserves cut its stimulus further last month, could further pressurize the currency to depreciate.
“We haven’t seen any foreign outflows from the bond market. If foreigners also exit from bond market, it will add more pressure on the rupee,” the dealer said.
Foreign investors sold a net 3.42 billion rupees ($26.18 million) worth of shares in the two sessions through Friday.
Dealers expect the currency to face downward pressure because of rising credit demand in a low-interest-rate regime. They said the Federal Reserve’s decision and the weekend US statement on bringing in another UN resolution against Sri Lanka will aggravate the fall.
Central Bank Governor Ajith Nivard Cabraal last week said Sri Lanka should not experience any major capital outflows or market volatility due to the Fed stimulus cut.
The rupee has gained about 3.4 percent since it hit a record low of 135.20 on Aug. 28.
It lost 2.5 percent in 2013.