Sri Lankan rupee steady at 2-month high; seen falling in Jan

COLOMBO Thu Dec 26, 2013 6:52am EST

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COLOMBO Dec 26 (Reuters) - The Sri Lankan rupee ended steady on Thursday as inward remittances from abroad were offset by dollar buying by a state bank to curb a sharp appreciation in the local currency amid mild importer demand for the greenback, dealers said.

The spot rupee closed at 130.72/75 per dollar, hovering around its highest close since Oct. 25. Both currency and share markets were closed on Wednesday for Christmas.

Dealers said one of the two state-run banks, through which the central bank usually influences the market, bought dollars at 130.70 rupees.

Dealers expect the rupee to be under downward pressure in January, reversing the current trend, due to a lack of demand for local currency loans and despite a sharp reduction in interest rates.

The central bank cut the key monetary policy interest rate by 50 basis points in October and has slashed them by 125 basis points since December 2012 to multi-year lows, while yields on treasury bills dropped to their lowest since November 2011 at last week's auction.,

However, private sector credit growth, which fell to 7.4 percent year-on-year in October from 7.6 percent in the previous month, has yet to pick up in line with the reduction in interest rates.

Dollar buying by the state bank offset the boost to the rupee from expatriates sending money to their families for Christmas and New Year. The local currency has gained 3.4 percent since it hit a record low of 135.20 on Aug. 28. (Reporting by Shihar Aneez; Editing by Sunil Nair)

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