REUTERS: Sri Lankan rupee forwards ended weaker yesterday due to importer dollar demand, while dealers expect growing uncertainty after the announcement of new tax hikes to weigh on the currency in the short term.

One-week rupee forwards, which act as a proxy for the spot currency, ended weaker at 145.85/90 per dollar compared with Friday’s close of 145.55/65.

The spot did not trade below 143.90, seen as the Central Bank’s desired level.

“There was importer (dollar) demand today and not much of inflows,” a currency dealer said, asking not to be named.

Analysts said the rupee would face downward pressure until any positive news.

S&P revised its outlook on Sri Lanka’s “B-plus” sovereign credit rating to negative on March 10, a week after Fitch downgraded its rating by a notch to “B-plus” with a negative outlook.

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 US $ 1.5-billion loan it is seeking from the International Monetary Fund (IMF).
The downgrade will be of concern to international investors and market players, said analysts, adding it would push up the cost of government borrowings in the international market, putting pressure on the rupee.

Foreign investors sold Rs.9.59 billion worth of government securities in the week ended March 16, data from the Central Bank showed, taking the total offloaded since December 30 to Rs.66.1 billion.
Commercial banks parked Rs.21.4 billion of surplus liquidity yesterday, using the Central Bank’s deposit facility at 6.50 percent, while they borrowed Rs.2.4 billion using the Central Bank’s lending facility at 8.00 percent, official data showed.