Feb 12 (Reuters) - The Sri Lanka rupee traded steady on Wednesday on dollar sales by a private lender while exporter sales of the greenback were offset by outflows from foreigners selling local shares, dealers said.
The market expects the currency to be under downward pressure due to lower interest rates that could result in higher imports in March and early April, ahead of the traditional new year in mid-April.
The spot rupee was at 130.80/85 per dollar by 0630 GMT, hardly changed from Tuesday's close of 130.82/85.
"A private bank sold dollars to cover its short positions in the rupee while there were some exporter selling of dollars as well," a currency dealer said on condition of anonymity.
"The rupee premium also is on the rise as they have not got adjusted to the current lower interest rates. There was also demand for dollars from foreigners who were exiting the stock market."
Two dealers said the one-year forward premium has risen by around 50 cents after short-term treasury bill yields fell to multi-year lows at a weekly auction on Tuesday.
The market is still concerned over the impact of the Fed's decision on gradual reduction in its bond buying programme with some dealers saying the rise in the U.S. Treasury yields could prompt foreign investors to pull out their investments in government securities.
The Fed's January decision to cut its monthly bond buying programme has largely not affected Sri Lanka so far, though some foreign funds have sold a 4.6 billion rupees ($35.16 million) in stocks in the four sessions through Tuesday.
However, foreign investors bought 15.57 billion rupees ($119.1 million) in government securities in the week ended Feb. 5, the central bank's latest data showed. The impact of inflows from this is yet to be seen, dealers said.
Central Bank Governor Ajith Nivard Cabraal on Jan. 27 said Sri Lanka should not experience any major capital outflows or market volatility due to the Fed stimulus cut.
Dealers expect the central bank to hold the rupee between 130.65/85, with mild volatility seen until April. Usually, the rupee is under downward pressure in March and early April due to seasonal imports ahead of the traditional new year.
The rupee has gained about 3.3 percent since it hit a record low of 135.20 on Aug. 28. It lost 2.5 percent in 2013.
At 0635 GMT, Sri Lanka's main stock index was down 0.21 percent, or 12.65 points, at 6,100.50, trading around its lowest level since Jan. 13. ($1 = 130.8250 Sri Lanka rupees) (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Sunil Nair)
