COLOMBO, Feb 14 (Reuters) - The Sri Lankan rupee edged up on Tuesday as dollar sales by exporters offset the demand for the U.S. currency, but concerns of a depreciation risk continued to weigh on the rupee, dealers said.
Rupee forwards were active with two-week forwards trading at 151.15/25 per dollar at 0633 GMT, firmer from Monday’s close of 151.20/25.
“Some local banks are on the (dollar) selling side,” said a currency dealer, requesting not to be named.
“We haven’t seen foreigners selling and it may be also a reason for the easing pressure. But today there is a dividend payment by a foreign bank.”
Dealers said the market has factored in the gradual depreciation risk and expects a 4-5 percent depreciation this year and does not expect a sharp depreciation like in the past.
The rupee fell 3.9 percent last year, following a 10 percent drop in 2015. The central bank has allowed the currency to gradually depreciate since mid-December, revising its spot reference rate multiple times.
Sri Lanka’s central bank governor, Indrajit Coomaraswamy, said on Wednesday the bank was not planning to abruptly scrap its support for the rupee.
The rupee has weakened 0.7 percent so far this year, and has been under pressure due to rising imports and net selling of government securities by foreign investors, while the central bank said defending the currency with foreign exchange reserves did not “seem sensible”.
The central bank kept its key rates steady last week for a sixth straight month, but flagged possible “corrective measures” in the months ahead in a sign that further tightening might be on the cards to temper inflation pressures and safeguard a fragile rupee.
Foreign investors net sold 31.38 billion rupees ($208.30 million) worth of government securities in the four weeks to Feb. 8, according to the latest central bank data.
Sri Lankan shares were up 0.1 percent to 6,114.38, as of 0645 GMT. Turnover was over 216.4 million rupees ($1.44 million). ($1 = 150.6000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Amrutha Gayathri)