March 14, 2017 / 7:17 AM / 4 months ago

Sri Lankan rupee steady ahead of bond auction

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COLOMBO, March 14 (Reuters) - The Sri Lankan rupee traded steady on Tuesday as importer dollar demand was offset by exporter selling of the U.S. currency ahead of a bond auction to raise $830 million.

The market is expecting some firm dollar inflows from Sri Lanka Development Bond auction due later in the day.

The central bank on Monday reversed a few transactions that were done on the two-week rupee forwards below 152.60 per dollar, dealers said.

"The downward pressure is building up again after the reversal," a currency dealer said, asking not to be named.

Central bank officials were not available for comment.

Rupee forwards were active, with two-week forwards trading at 152.45/60 per dollar, little changed from Monday's close of 152.50/70.

The central bank is struggling to maintain a flexible exchange rate in the face of heavy foreign outflows from government securities. The rupee has depreciated 1.1 percent so far this year, having lost 3.9 percent of its value against the dollar last year.

The country missed the end-December net internal reserves target set by the International Monetary Fund for a $1.5 billion loan approved last year and since then the central bank is hardly selling dollars to defend the currency, dealers said.

The IMF last week urged the central bank to rebuild foreign reserves while maintaining exchange rate flexibility.

Dealers expect the rupee to depreciate between 6 percent and 8 percent this year.

Foreign investors bought a net 1.87 billion rupees ($12.4 million) worth of government securities in the week ended March 8, recording the second weekly net inflow for the year. They have sold a net 61.89 billion rupees of such instruments so far this year.

Sri Lankan shares were down 0.07 percent at 6,066.50, as of 0703 GMT. Stockbrokers say speculation of a rate hike after the IMF last week urged the central bank to stand ready to tighten interest rates is weighing.

Turnover stood at 744.6 million rupees ($4.92 million).

$1 = 151.3500 Sri Lankan rupees Reporting by Shihar Aneez; Editing by Vyas Mohan

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