Sri Lankan rupee falls on light dollar demand

Dec 27, 2016 (Reuters) – The Sri Lankan rupee fell on Tuesday on thin importer dollar demand after a long weekend as the market waited for direction from the central bank after it said depreciation of the currency was not necessarily negative for the economy, dealers said.

The central bank said on Friday that “it is important to understand that depreciation of the rupee has not only negative implications, but also positive implications on the Sri Lankan economy”.

Rupee forwards were active, with one-week forwards trading at 150.00/20 per dollar, down from Friday’s close of 149.75/90. The markets were closed for a special bank holiday on Monday in lieu of Christmas holiday on Sunday.

“There was some small amount of importer demand. The market is very quiet,” said a currency dealer asking not to be named.

Spot-next forwards and the spot rupee were hardly traded, dealers said.

Some dealers said they expect the central bank to allow market forces to determine the rupee’s direction next year, while others said the bank would have to let the currency depreciate or raise key policy rates at a monetary board meeting this week.

The central bank increased the spot reference rate by 30 cents to 149.10 after the U.S Federal Reserve raised interest rates by 25 basis points earlier this month.

Sri Lankan shares were steady near their lowest since April 6 as of 0804 GMT.

Turnover stood at 67.1 million rupees ($449,732).

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