Sri Lanka rupee steady despite importer dollar demand

COLOMBO, Aug 18 (Reuters) – The Sri Lankan rupee ended steady on Tuesday amid importer dollar demand as a state-run bank defended the local currency from declining, while dealers said they expected the central bank to let the market determine the exchange rate after parliamentary polls this week end eight months of political instability.

Former president Mahinda Rajapaksa’s attempt to stage a comeback in the nation’s general election has ended in defeat as election results on Tuesday showed the alliance that toppled him making decisive gains.

The ruling United National Party was likely to fall just short of an outright majority but Prime Minister Ranil Wickremesinghe should still command enough support to form a stable government.

The rupee ended steady at 134.00 per dollar, as one of the two state-run banks, through which the central bank usually directs the market, sold dollars at a flat rate of 134.00.

"There was importer demand and the exporters are reluctant to sell (dollars)," said a currency dealer, asking not to be named.

On Monday, the currency fell for a third session in four, as the state-run bank raised the currency’s peg against the dollar by 10 cents to allow the exchange rate to depreciate to 134.00, dealers said.

They expect the central bank, which has so far this year directed the market through the state-run bank, to let the currency remain weaker after Monday’s parliament elections due to importer dollar demand and global trend.

Analysts said the rupee may fall to 137 levels in the short term if the central bank allows it to depreciate, in line with the weakening seen in other global currencies against the dollar.

Dealers said there was heavy importer dollar demand with some booking forwards. Exporters held onto dollars, expecting the rupee to depreciate further, they added.

Central bank officials were not immediately available for comment.

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The currency has fallen 0.37 percent since Aug. 5 as the state-owned bank raised the currency’s peg against the dollar by 50 cents on four occasions, allowing the exchange rate to fall.

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