COLOMBO, Jan 3 (Reuters) - The Sri Lankan rupee closed slightly weaker in thin trade on Tuesday amid worry over slowing foreign fund inflows, while the central bank said defending the currency with foreign exchange reserves was not sensible.
Central Bank Governor Indrajith Coomaraswamy said after the markets closed on Tuesday defending the rupee currency with foreign exchange had become futile as a heavy defence was always followed with a sharp depreciation.
Rupee forwards were active, with one-month forwards ending at 151.00/20 per dollar, compared with Monday’s close of 150.95/151.00.
One-week forwards were quoted around 150.25/35, while spot-next forwards and the spot rupee were hardly traded, dealers said.
“The market is quiet and waiting for some strong inflows,” said a currency dealer who declined to be identified.
“The central bank governor’s statement makes sense. I don’t think the central bank has adequate reserves to defend the currency strongly. It is more sensible to allow market players to determine it.”
The rupee has been under pressure due to imports and foreign investors exiting government securities, dealers said.
On Friday, the central bank raised the spot currency reference rate to 150.00, a record low against the dollar.
The banking regulator raised the spot reference rate by 50 cents last week, after a 40-cent increase in each of the previous two weeks amid sustained pressure on the currency.
Dealers said the market was bracing for some depreciation in the rupee in January after the central bank said its depreciation was not necessarily negative for the economy.
Reporting by Shihar Aneez and Ranga Sirilal