December 28, 2016 / 11:58 AM / a year ago

Sri Lankan rupee ends weaker on importer dollar demand

COLOMBO, Dec 28 (Reuters) - The Sri Lankan rupee closed lower on Wednesday on importer dollar demand after the central bank raised the spot reference rate, while moral suasion by the banking regulator capped further losses in the domestic currency, dealers said.

The market, however, waited for direction from the central bank after it said on Friday that depreciation of the currency was not necessarily negative for the economy.

Rupee forwards were active, with one-week forwards closing at 150.10/25 per dollar, down from Tuesday’s close of 149.70/150.00.

Spot-next forwards and the spot rupee were hardly traded, dealers said.

“The central bank raised the spot reference rate by 30 cents today to 149.80 and it also asked banks not to trade one-week forwards below 150.00 per dollar,” a currency dealer said, asking not to be named.

Officials from the central bank were not immediately available for comment.

Another dealer said lack of exporter conversions weighed on the currency.

The central bank last week raised the spot reference rate by 40 cents to 149.50, following another 40 cent hike in the previous week.

The central bank said 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”.

The central bank may allow market forces to determine the rupee’s direction next year, some dealers said, while others said they believed the bank would have to let the currency depreciate or raise key policy rates at a meeting on Friday. (Reporting by Shihar Aneez; Editing by Biju Dwarakanath)

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