COLOMBO, Feb 13 (Reuters) - The Sri Lankan rupee pared early losses to end steady on Monday, as late exporter dollar sales offset the demand for the U.S. currency, but pressure of a depreciation risk weighed on sentiment, dealers said.
Rupee forwards were active with two-week forwards ended steady at 151.20/25 per dollar.
Sri Lanka’s stock and foreign exchange markets were closed on Friday for a Buddhist holiday.
“The market has factored in the gradual depreciation risk,” said a currency dealer, requesting not to be named. “The market expects a 4 percent-5 percent depreciation this year and does not expect any 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 0.6 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.
$1 = 150.7000 Sri Lankan rupees Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sherry Jacob-Phillips