June 23, 2017 / 11:17 AM / 2 months ago

Sri Lankan rupee edges down on importer dollar demand

COLOMBO, June 23 (Reuters) - The Sri Lankan rupee ended slightly weaker on Friday as dollar demand from importers surpassed exporter sales of the U.S. currency and inward remittances, after the central bank held the key policy rates steady as expected, dealers said.

The central bank kept its benchmark interest rates steady on Friday before the markets opened, saying the current monetary policy was appropriate as it expected the economy to recover in the second half of the year.

The spot rupee, which has been trading for five straight sessions after being inactive for six weeks, ended at 153.22/30 per dollar, compared with Thursday's close of 153.15/25.

The spot rupee resumed trading on Monday for the first time since May 5 when the central bank had fixed its reference rate at 152.50.

"There was (dollar) demand throughout the day and the demand was met by dollar sales by a foreign bank and some inward remittances," said a currency dealer, requesting anonymity.

Dealers said they expect seasonal demand for the dollar to pick up from August.

The rupee has been under pressure after the central bank said it would allow gradual depreciation of the currency and set a target of $1.2 billion in direct market purchases of dollars to boost the island nation's reserves this year, mainly to meet a target set by the International Monetary Fund for a three-year $1.5 billion loan.

Analysts said the rupee's weakening is a key concern in the future.

"If, as we expect, the Fed tightens monetary policy more aggressively than the market expects over the coming months, there is a risk that this could lead to further falls in the (rupee) currency against the U.S. dollar," Krystal Tan, Asia economist at Capital Economics, said in a research note.

The markets will remain closed on Monday for the Islamic Id-Ul-Fitr holiday and trading will resume on Tuesday. ($1 = 152.8200 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Amrutha Gayathri)

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