COLOMBO, Aug 1 (Reuters) - The Sri Lankan rupee traded steady on Friday in dull trade as exporter dollar sales offset mild importer demand amid sluggish imports, dealers said.
The rupee was traded at 130.21/22 per dollar, unchanged from Thursday’s close.
“State banks are buying dollars for importer demand, while there are inflows from both exporters and remittances,” said a currency dealer on condition of anonymity.
Another dealer said the central bank has been buying dollars from the market, increasing rupee liquidity and sending yields on government securities lower amid lack of strong demand for private credit and imports.
“Investors do not have many options in fixed income assets at the moment due to declining yields,” he said.
The central bank has absorbed more than $750 million from the market to prevent a sharp appreciation in the rupee and support exporters.
Dealers said the rupee is still facing an upward pressure with the two state banks buying dollars at 130.21 rupees.
Usually the central bank intervenes through the two state banks to direct the market to smoothen volatility. Dealers said the buying on Friday was for imports.
The International Monetary Fund (IMF) on Wednesday urged Sri Lanka to limit its intervention in the foreign exchange market.
The IMF said the central bank’s intervention in the foreign exchange market may create a perception that the rupee was implicitly fixed and could lead market participants and firms to hold un-hedged foreign exchange risk on their balance sheets.
Finance Secretary P.B. Jayasundera said last week that Sri Lanka was building up its foreign exchange reserves while keeping its currency stable as the island nation sees more dollar inflows.
Jayasundera attributed the increased inflows, which the central bank has been absorbing, to a rise in inflows from exports, tourism and remittances.
Dealers had been expecting the rupee to appreciate due to weak growth in imports and private sector credit, despite multi-year low interest rates.
Sri Lanka’s main stock index was up 0.22 percent, or 15.13 points, at 6,829.03 at 0615 GMT, hovering around its highest level since September 2011. Turnover was 428.1 million rupees ($3.29 million) with 34.4 million shares changing hands. ($1 = 130.1700 Sri Lankan Rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Subhranshu Sahu)