Sri Lanka rupee edges down on import demand; concerns remain over Iran crude

COLOMBO, June 24 Tue Jun 24, 2014 3:51am EDT

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COLOMBO, June 24 (Reuters) - The Sri Lankan rupee traded slightly weaker on Tuesday as importer dollar demand outpaced greenback sales by exporters, while dealers raised concerns about possible U.S. sanctions after the country imported Iran crude via third parties.

Dealers said the rupee would be under pressure if the United States takes any action against Sri Lanka for importing Iranian crude via third parties.

The rupee was at 130.28/32 per dollar at 0653 GMT weaker from Monday's close of 130.25/30.

Currency dealers said it was too early to speculate any implications over the country breaching the U.S. sanctions law.

"In the event Sri Lanka had breached the sanctions, we don't know how the U.S. would react. It could be an economic sanction or sanctions on specific institutions," a currency dealer said on condition of anonymity.

The Sri Lankan government spokesman said on Thursday the island nation had been buying Iranian crude from various countries via third parties, with the understanding of the United States.

The U.S. has denied it had any agreement with Sri Lanka to allow Colombo to import Iranian crude via third parties.

State Department deputy spokeswoman Marie Harf on Friday said in the event of Sri Lankan breaching the sanctions, the U.S. would have to consider our response consistent with its legal obligations and "any violations would immediately make the company or institution vulnerable to sanctions."

Sri Lanka's oil import bill could rise if it has to buy more refined oil, dealers said. However, the country's foreign ministry has rejected the government spokesman's claim.

Dealers expect the currency to be stable, if there is no pressure from the oil import bills, due to rising exports and a fall in imports and private sector credit growth.

On Monday, the island nation's national carrier, Sri Lankan Airlines priced a $175 million five-year, government-guaranteed bond, for a yield of 5.3 percent.

Dealers said the bond proceeding could help boost the reserves and give more room for central bank to intervene in the long run.

The rupee has appreciated 0.4 percent during the year up to June 19, the central bank said in a statement on Friday, while the central bank had absorbed around $550 million from the domestic foreign exchange market this year through June 17.

Sri Lanka's main stock index was up 0.2 percent, or 12.56 points, at 6,311.91 as of 0714 GMT. Turnover was 651.8 million rupees ($5.01 million), with 48 million shares changing hands. ($1 = 130.2000 Sri Lankan Rupees) (Reporting by Ranga Sirilal and Shihar Aneez)

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