COLOMBO, May 9 (Reuters) - Sri Lankan rupee forwards ended slightly firmer on Tuesday due to exporter dollar sales and inward remittances, while trading was dull ahead of a two-day holiday.
Sri Lanka’s central bank does not want to allow the rupee to fall “too quickly”, Governor Indrajit Coomaraswamy said earlier in the day, but suggested further weakness in the exchange rate is on the cards as policy makers sought a competitive currency.
The downward adjustment on the spot currency was to make the rupee more competitive, he added.
“That shows where the rates should be. So we are going to gradually let the reference rate go a little bit. We are trying to see whether we can compress that (gap) and let the reference rate move in the direction of what seems to be the market rate.”
The monetary authority, before the markets opened, kept the policy rates steady as expected saying inflation is expected to decelerate to mid-single digit levels by end-2017.
Rupee forwards were active, with the spot-next ending at 152.65/75 per dollar, firmer from Monday’s close of 152.80/85. Two-week forwards ended steady at 153.10/20.
The spot rupee, which resumed trading on Friday after four months, was not active on Tuesday, with the central bank’s reference rate at 152.10.
Sri Lankan markets will be closed on Wednesday and Thursday to mark a Buddhist religious holiday.
Sri Lanka drew a blowout response in its return to the international bond market, attracting orders of more than $11 billion from 500 accounts for a $1.5 billion 10-year bond.
Coomaraswamy said the sovereign bond inflows are expected by end of this week.
Currency dealers expect higher dollar liquidity from the inflows to help stabilise the rupee.
The country also expects another $1 billion from two separate syndicated loans, and the central bank chief said a $450 million syndicated loan is almost decided and the inflows are expected next week.
The central 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 did not “seem sensible”.
The island nation has seen inflows into equities and government securities since early April. ($1 = 152.3000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair)