Sri Lanka rupee near record low on lack of dollar liquidity

COLOMBO - The Sri Lankan rupee was weaker on Monday on moderate importer dollar demand as expectations of a further fall in the local currency discouraged exporters from converting the greenback, dealers said.

The rupee traded at 144.20/40 per dollar, near a record low of 144.25, and edging down from Friday's close of 144.15/25. "No liquidity in the market as the exporters are very reluctant to sell (dollars), expecting further depreciation,"said a currency dealer asking not to be named.

The rupee hit a record low of 144.25 per dollar in intraday trade on Wednesday as speculation that the currency would weaken further weighed. A central bank decision to tighten liquidity in the money market with effect from Jan. 16 is yet to ease pressure on the rupee.

The rupee has fallen 6.5 percent since the central bank allowed free float of the currency on Sept. 4 and is expected to weaken further in 2016 due to lower reserves and higher imports, currency dealers say. It fell 9 percent last year.

Economists say the government's loose monetary and fiscal policies have contributed to the steep fall, with private sector credit recording 26.3 percent growth in October year on year, compared with 13.9 percent in March.

Central Bank Governor Arjuna Mahendran on Thursday said the rupee would stabilise when exports start to pick up next year, but uncertainty will prevail if the U.S. Federal Reserve goes for another rate hike in March.

The island nation suffered a net outflow of 153.4 billion rupees (S$3.2 billion) from foreign holdings in government securities in 2015, the latest data showed.

Sri Lanka's main stock index was 0.34 percent or 23.17 points weaker at 6,871.33 at 0705 GMT. Turnover stood at 835 million rupees.