Sri Lanka suspends rice exports amid drought

* Rice exports banned until March harvest

* An exception to be made for small amount of export-targeted varieties

COLOMBO, June 28 (Reuters) - Sri Lanka banned rice exports on Thursday until its harvest season next March aiming to stabilise local prices as its major rice-producing area struggles with a prolonged drought.

Rice is the staple food in the island nation and any price increase could accelerate the $59 billion economy's inflation.

Its subgroup, cereals and bread, accounts for 7.9 percent of the total consumption basket used to compile inflation.

The country's major rice-producing areas are experiencing severe drought which could hit production in the second half of this year.

The Ministry of Finance and Planning on its website www.treasury.gov.lk said the decision was taken to ensure adequate rice stocks at affordable prices until next March.

"The export ban of paddy and available rice will ensure more than required rice supply for the balance period at stable prices at (the) current level, stabilizing the cost of living as well," the Ministry said.

"This ban will ensure not only food security is guaranteed but also that the country will not require to import rice by spending foreign exchange."

Sri Lanka has implemented tough monetary and fiscal policy measures since February to reduce its trade deficit and avoid a balance-of-payments crisis.

The country produced 3.9 million metric tonnes of paddy last year and the Finance Ministry said the country has a rice stock of 1.26 million metric tonnes, including the private sector.

It exports around 10,000 tonnes of rice annually to countries in the Middle East where most of its expatriates work as well as to Kenya.

One exception to the ban will be a small amount of rice processed exclusively for export markets which will not be affected, the ministry said. (Reporting by Shihar Aneez; editing by Jason Neely)