COLOMBO, Dec 21 (Reuters) - The Sri Lankan rupee closed weaker on Wednesday due to dollar demand from importers and capital outflows from government securities, dealers said, as the greenback hovered near 14-year peaks against a basket of major currencies.
The U.S. currency has chalked up all its 4.5 percent gains for the year since the Nov. 8 presidential election, as traders have bet that President-elect Donald Trump’s administration will go on a growth-boosting tax cut and fiscal spending spree.
Rupee forwards were active, with one-week forwards closing at 150.50/90 per dollar, compared with Tuesday’s close of 150.25/50.
“There is not only importer dollar demand, but also some foreign outflows. We do not see exporter conversions as we saw early this month, and remittances are not up to expectations,” a currency dealer said on condition of anonymity.
Spot-next forwards were hardly traded, dealers said. They were actively traded until Tuesday in the absence of trading in the spot rupee.
“I think the authorities would hold the rupee around the 150 level until the end of the year. But the central bank will not be able to hold it for long because it is buying dollars to build up reserves in line with a commitment to the IMF,” another currency dealer said.
Other dealers said the central bank will have to let the currency depreciate or raise key policy rates at a monetary board meeting later this month.
Finance Minister Ravi Karunanayake told Reuters in an interview on Tuesday that the currency would recover and be steady next year with expected foreign inflows.
The central bank increased the spot reference rate by 40 cents to 149.10 last week.
The rupee usually rises in December ahead of Christmas and New Year due to remittances from expatriates, but dealers said the currency was expected to face pressure this time due to higher dollar demand from importers following the Fed rate hike.
Analysts said they expect some capital outflows as an immediate reaction to the Fed rate hike, and have expressed concern that the government’s foreign borrowing cost would rise in the short term.
Foreign investors have net sold 52.3 billion rupees ($350.77 million) of government securities in the eight weeks ended Dec. 14. (Reporting by Shihar Aneez; Editing by Biju Dwarakanath)