REUTERS: The Sri Lankan rupee ended steady yesterday on moral suasion by the Central Bank, with the market expecting downward pressure on the currency to ease due to higher government borrowing amid rising interest rates.
“The rise in interest rate and heavy demand for the rupee by the government will ease the pressure. Exporters will start converting dollars when the rise in interest rates becomes attractive to convert their dollars into rupees,” a currency dealer said on condition of anonymity.
“But exporters are still waiting to see a further rise in interest rates.”
Actively traded one-week forwards were steady at 133.60/75 per dollar, on moral suasion by the Central Bank.
The Central Bank officials were not available for comment. The spot currency was also steady at 132.90/133.20, for a ninth straight session, well within the limits set by the Central Bank. Dealers said some banks sold dollars to cover their net open positions. The Central Bank plans to raise Rs.50 billion through government securities this week, it said on its website.
The Central Bank removed a penalty rate of 5 percent on its repo rate with effect from March 2. The bank had imposed the penalty in September to discourage commercial banks from parking money with it at an interest rate of 6.5 percent.
The scrapping of the penalty resulted in a rise of between 86 basis points and 91 basis points in T-bill yields last Tuesday.
Central Bank Governor Arjuna Mahendran said last Thursday that the country’s foreign reserves were on the rise, indicating that the bank was not intervening as aggressively in the forex market as earlier.  He said Sri Lanka’s foreign reserves have increased to over US $ 7 billion, from US $ 6.3 billion in January.