* C.bank raises repo by 25 bps, reverse repo by 75 bps
* Signs of 'undesired' credit growth continues
* Analysts expect downward pressure on rupee to ease (Adds quotes)
By Shihar Aneez
COLOMBO, April 5 (Reuters) - Sri Lanka's central bank on Thursday r aised policy rates as expected t o curb credit growth which it said appeared to be expanding at an "undesired pace".
The island nation's monetary authority raised the repurchase rate by 25 basis points to 7.75 percent and the repurchase rate by 75 basis points to 9.75 per cent. Both are now at their highest levels in more than two years.
The central bank decision to raise the rates this year for a second time was mainly to curb credit growth, which hit a 16-year high of 34 percent by the end of 2011.
"There are still some signs that credit growth is continuing at an undesired pace," the central bank said in a statement.
"Therefore, the monetary board is of the view that a further adjustment of policy rates...is warranted to ensure a smooth deceleration of credit growth through the year in order to achieve the target set for end year, and to anchor inflation expectations."
Analysts said the move will ease depreciation pressure on the rupee.
"This direction gives a warning signal to borrowers that they will have to pay a high price for credit and it will help to ease the demand for importer dollars," said a currency dealer on condition of anonymity.
"But there should be at least a 2 percent rate hike to ease of the pressure on the rupee."
The rupee has depreciated by 9.2 percent since the central bank stopped defending it on Feb. 9. The currency hit a record low of 131.60 to the dollar on March 19, but has rebounded 5 percent since then.
Sri Lanka's Treasury Secretary on Wednesday told Reuters another 50 basis points' upward revision in the policy rates could stabilise the whole macroeconomic environment.
In February, the central bank raised both rates by 50 basis points, its first such move since 2007, while ordering banks to limit 2012 credit growth to 18 percent year-on-year.
After the February rate hikes and change in exchange rate policy, the government also raised fuel, electricity and transportation prices to cool demand-side pressures.
That prompted the central bank to lower its 2012 economic growth target to 7.2 percent, from 8 percent.
The IMF said on Tuesday the economy had not gone into overdrive, but cautioned there were signs that bore watching, such as increases in credit and imports.
A Reuters poll had expected the central bank to raise policy rates by 25 basis points. (Reporting by Shihar Aneez; Editing by Bryson Hull)