March 24, 2017 / 6:05 AM / 4 months ago

Sri Lankan rupee weaker despite cenbank rate hike

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COLOMBO, March 24 (Reuters) - The Sri Lankan rupee traded weaker on Friday on importer dollar demand despite the central bank's decision to raise key rates by 25 basis points in a move to ease the pressure on the currency.

The central bank raised its benchmark interest rates by 25 basis points before the markets open on Friday for the first time in eight months to contain high inflationary expectations and a possible acceleration of demand side inflationary pressures.

Rupee forwards were active, with two-week forwards trading at 152.50/60 per dollar 0531 GMT, compared with Thursday's close of 152.45/55.

"I have seen some importer dollar demand. But it is the bond market which is active at the moment after the rate hike," said a currency dealer, requesting anonymity.

Analysts said the rate hike could help stabilise the rupee as rising imports and outflows due to rupee bond sales by foreign investors exert pressure on the currency.

The central bank raised the spot rupee reference rate by 25 cents to 151.60 on Monday. Dealers said the banking regulator had been preventing spot rupee trades below 151.35 per dollar since March 8.

Central bank officials were not available for comment.

Foreign investors net sold government securities worth 1.41 billion rupees ($9.3 million) in the week ended March 15, after two weeks of net inflows. They have net sold 63.3 billion rupees of such instruments so far this year.

Sri Lankan shares were down 0.03 percent at 5,978.63, as of 0547 GMT. Turnover stood at 688.4 million rupees ($4.54 million). ($1 = 151.6000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sherry Jacob-Phillips)

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