July 3, 2018 / 12:25 PM / a year ago

Sri Lankan rupee slips; dollar selling by state bank caps fall

COLOMBO, July 3 (Reuters) - The Sri Lankan rupee edged lower for a second straight session on Tuesday in moderate trade, as importer dollar demand outpaced inflows from inward remittances, while a state bank helped ease downward pressure by selling the U.S. currency, dealers said.

The rupee ended at 158.50/60 per dollar, compared with Monday’s close of 158.35/45.

“There was a temporary calm. There was construction-related importer demand. We saw a state bank sold dollars at 158.50 and did not allow the rupee to fall beyond this level,” a currency dealer said.

“Downward pressure on currency is now everywhere in emerging markets. The rise in Fed rates, the trade war between China and the United States, and the rise in oil prices have contributed to this situation.”

The spot rupee hit an all-time low of 160.17 per dollar on June 20 and is down 3.2 percent so far this year.

A strengthening dollar since mid-April has increased the credit risk of several emerging markets, including Sri Lanka, due to currency depreciation, ratings agency Moody’s said on Wednesday.

Moody’s said a strong dollar would also lead to a drop in foreign exchange reserves of countries such as Argentina, Ghana, Mongolia, Pakistan, Sri Lanka, Turkey, and Zambia.

The downward pressure on the rupee has shown signs of easing after the island nation received more than half a billion dollars from a Chinese port operator last month.

China Merchants Port Holdings made a $584 million payment as part of a $1.12 billion deal to operate the deep sea Hambantota port.

The International Monetary Fund (IMF) said last month Sri Lanka’s economy remains vulnerable to adverse shocks because of sizable public debt and large refinancing needs.

Foreign investors sold government securities worth a net 3.5 billion rupees ($22.11 million) in the week ended June 27, bringing the outflows so far this year to 29 billion rupees, central bank data showed.

$1 = 158.3000 Sri Lankan rupees Reporting by Shihar Aneez; Editing by Subhranshu Sahu

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