COLOMBO, Feb 2 (Reuters) - Sri Lankan rupee forwards closed steady on Monday due to state bank dollar sales after moral suasion by the central bank capped a fall in the local currency in early trade, dealers said.
Currency dealers said the rupee may depreciate because of an expected increase in consumption after a raft of tax reductions on key commodities in last week’s supplementary budget.
Fears of a depreciation in the rupee kept exporters away from the market, resulting in the currency’s fall, leading the central bank to cap four-day forwards at 133.00 and one-week forwards at 133.50, dealers said.
One-month forwards ended steady at 133.67/70 per dollar.
One-week forwards ended a tad firmer at 133.30/40 per dollar compared to Friday’s close of 133.50/60.
“A state bank sold dollars to prevent the fall,” said a dealer.
Some dealers said the currency will be under pressure with the increase of disposable income from the budget.
The new government on Thursday imposed taxes on cash-rich firms to pay for populist policies and tax reductions on key commodities in a bid to woo voters as it faces a parliamentary election in the second quarter.
Dealers said exporters were reluctant to sell as they expected further depreciation in the currency in the short term, with the widening trade balance and in line with global currencies.
The spot currency has not been trading, while forwards have been trading with downward pressure, dealers said.
The market had been expecting a flexible exchange rate with more foreign grants under the new government as opposed to the controlled exchange rate regime earlier.
Markets will be closed for a Buddhist and Independence Day holidays on Tuesday and Wednesday respectively. Normal trading will resume on Thursday. (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)