COLOMBO, Feb 15 (Reuters) - The Sri Lankan rupee traded weaker on Wednesday as importer dollar demand and concerns of further depreciation continued to weigh, dealers said.
The market has factored in a gradual depreciation risk for the rupee and it expects a 4-5 percent fall in the currency this year, they said.
Finance Minister Ravi Karunanayake said after market hours on Tuesday that protecting a fragile rupee was more important than controlling interest rates as the local currency tended not to rebound after depreciating.
Rupee forwards were active, with two-week forwards trading at 151.25/30 per dollar at 0458 GMT, weaker from Monday’s close of 151.20/25.
“The rupee is under pressure on importer demand,” said a currency dealer, requesting not to be named.
Central bank governor, Indrajit Coomaraswamy, said last week the bank was not planning to abruptly stop supporting the rupee.
The apex bank has allowed the currency to gradually depreciate since mid-December, revising its spot reference rate multiple times. It has said that defending the currency with foreign exchange reserves does not “seem sensible”.
The rupee has weakened 0.47 percent so far this year, under pressure due to rising imports and net selling of government securities by foreign investors. It fell 3.9 percent last year, following a 10 percent drop in 2015.
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 latest central bank data.
Sri Lankan shares were up 0.18 percent to 6,159.87, as of 0519 GMT. Turnover was at 112.8 million Sri Lankan rupees ($750,499.00) ($1 = 150.3000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)