COLOMBO, May 20 (Reuters) - The Sri Lankan rupee ended steady for a third straight session on Tuesday as a state bank bought dollars to offset upward pressure from exporter dollar conversions, while dealers expected pressure on the local currency to continue.
Dealers expect the Sri Lankan currency to rise, if the central bank allows, fed by steady inflows in the absence of strong demand for imports and credit.
The rupee ended at 130.35/40 per dollar, unchanged from Monday’s close.
Dealers said one of the two state banks, through which the central bank directs the market, bought dollars.
“The rupee is appreciating. There are (dollar) conversions. But as long as the state banks on behalf of central bank are buying, you won’t see it on the exchange rate,” said a currency dealer.
Dealers said the central bank had been preventing the appreciation over the last few weeks as steady inflows pressured the currency upward amid dampened demand for private sector credit and imports.
While maintaining the policy rate for the fourth straight month on Tuesday, Sri Lanka’s central bank said it expected to introduce a new guarantee scheme for gold loans to boost credit growth that hit a four-year low in March.
Despite a multi-year low interest rate regime, data showed private sector credit grew at a four-year low of 4.3 percent in March from a year earlier, while imports in February fell 6.2 percent on the year.
Dealers expect the rupee to face upward pressure until credit growth and imports reverse the trend.
On Monday, central bank governor Ajith Nivard Cabraal said private sector credit growth would pick up to around 15 percent by end-2014 and continue to improve through 2016.
Reporting by Shihar Aneez and Ranga Sirilal; Editing by Prateek Chatterjee