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Sri Lankan rupee forwards firmer on banks’ dollar sales

COLOMBO (Reuters) – Sri Lankan rupee forwards were slightly firmer on Tuesday due to dollar sales by banks, but dealers expect the local currency to remain under pressure through the middle of this year on lower interest rates.

Actively traded one-month forwards were at 134.75/85 per dollar, edging up from Monday’s close of 134.80/90.

"There are some (dollar) sales by banks, but the depreciation pressure is rising day by day amid declining interest rates," said a currency dealer asking not to be named.

Two-week and one-week forwards were steady at 133.90/134.00 and 133.60/70 per dollar, respectively.

The central bank through moral suasion prevented the spot rupee from dropping below 132.90/133.20, a limit it set in February.

Central bank officials were not available for comment.

Currency dealers said political uncertainty has been weighing on investor confidence and putting pressure on the exchange rate after President Maithripala Sirisena’s 100-day programme ended on Thursday.

Sirisena, who promised to dissolve parliament after the end of his 100-day programme on April 23, on Monday presented proposed constitutional reforms, which are expected to be voted later on Tuesday.

The reforms also focuses on establishing independent police, judiciary, and election and public service commissions and passage of them is seen a tough challenge for Sirisena.

Currency dealers said the rupee would also be under pressure through June as credit growth was expected to hit a peak due to lower interest rates.

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The main stock index was up 0.16 percent at 7,136.82 at 0602 GMT. Turnover stood at 354.7 million rupees ($2.67 million). ($1 = 132.9000 Sri Lankan rupees)