December 23, 2016 / 8:38 AM / 3 years ago

Sri Lankan rupee steady in thin trading ahead of holiday

COLOMBO, Dec 23 (Reuters) - The Sri Lankan rupee was steady in lacklustre trading on Friday ahead of a long weekend, amid little importer demand for the dollar, dealers said.

The rupee forwards were active, with one-week forwards trading at 150.70/80 per dollar, largely flat from Thursday’s close of 150.70/90.

“We do not see any big (dollar) demand in the market,” said a currency dealer asking not to be named. “But we do not see quick remedies for the rupee fall after the holidays as the central bank has not been actively intervening.”

Sri Lanka markets will be closed for a bank holiday on Monday in lieu of Christmas on Sunday.

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

Some dealers expect the central bank to allow market forces to determine the rupee’s direction next year.

Other dealers said the central bank would have to let the currency depreciate or raise key policy rates at a monetary board meeting later this month.

Finance Minister Ravi Karunanayake told Reuters in an interview on Tuesday that the currency would recover and be steady next year with expected foreign inflows.

The central bank increased the spot reference rate by 30 cents to 149.10 after the Fed raised interest rates by 25 basis points last week. It raised the reference rate by a total 40 cents last week.

The rupee usually rises in December ahead of Christmas and New Year due to remittances from expatriates, but dealers said the currency was expected to face pressure this time due to higher dollar demand from importers following the Federal Reserve’s U.S. rate hike.

Analysts said they expect some capital outflows as an immediate reaction to the Fed rate hike, and have expressed concern that the government’s foreign borrowing cost would rise in the short term.

Foreign investors net sold 52.3 billion rupees ($350.77 million) of government securities in the eight weeks ended Dec. 14.

Sri Lankan shares were steady at their lowest since April 6 as of 0822 GMT.

Turnover stood at 113.5 million rupees ($761,234).

$1 = 149.1000 Sri Lankan rupees Reporting by Shihar Aneez; Editing by Amrutha Gayathri

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