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COLOMBO, Dec 27 (Reuters) - The Sri Lankan rupee ended steady on Tuesday after earlier falling on thin importer dollar demand, dealers said, even as the market looked for cues after the central bank said currency depreciation was not necessarily negative for the economy.
The central bank said in a note 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 closing at 149.70/150.00 after falling to 150.00/20 per dollar earlier in the session. It closed at 149.75/90 on Friday.
The markets were closed for a special bank holiday on Monday in lieu of Christmas holiday on Sunday.
"The market expects the rupee to be lower than 150 in the new year and depreciate gradually if the central bank allows greater flexibility," 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.
$1 = 149.2000 Sri Lankan rupees Reporting by Shihar Aneez; Editing by Biju Dwarakanath