March 16, 2017 / 7:41 AM / 5 months ago

Sri Lankan rupee falls; cbank moral suasion dampens trade

COLOMBO, March 16 (Reuters) - The Sri Lankan rupee fell on Thursday on dollar demand from importers, but moral suasion by the central bank put a dampener on trade after expectations of a nearly $1 billion inflow from a bond sale failed to ease pressure on the currency, dealers said.

Dealers said the banking regulator has been preventing spot rupee trades below 151.35 per dollar. Central bank officials were not available for comment.

The spot currency was quoted at 151.75/152.75 per dollar, but was not traded.

Rupee forwards saw slight activity, with one-month forwards quoted at 154.10/40 per dollar, compared with Wednesday's close of 153.75/154.00.

Two-week forwards were quoted at 153.40 per dollar, compared with Wednesday's close of 152.90/153.10.

"Nothing is happening. Everybody is clueless and nobody wants to go down and trade," said a currency dealer, asking not to be named.

On Tuesday, the central bank reversed a transaction on two-week rupee forwards that was weaker than 152.60 per dollar, dealers said at the time.

The central bank, on behalf of the government, raised a record $973.25 million through a Sri Lanka Development Bond auction on Tuesday, with inflows expected from Friday.

The expectation of inflows did not however change the perception on the currency, which has been under pressure for more than three months.

The rupee has depreciated 1.6 percent so far this year, having lost 3.9 percent of its value against the dollar last year, and dealers expect the rupee to depreciate between 6 percent and 8 percent this year.

The central bank is struggling to maintain a flexible exchange rate in the face of heavy foreign outflows from government securities.

Foreign investors bought a net 1.87 billion rupees ($12.4 million) worth of government securities in the week ended March 8, recording the second weekly net inflow for the year.

They have sold a net 61.89 billion rupees of such instruments so far this year.

The country also missed its end-December net internal reserves target set by the International Monetary Fund for a $1.5 billion loan approved last year.

Since then, the central bank has been hardly selling dollars to defend the currency, dealers said.

Last week, the IMF urged the central bank to rebuild foreign reserves while maintaining exchange rate flexibility.

Meanwhile, Sri Lankan shares were up 0.01 percent at 6,032.92, as of 0735 GMT. Turnover stood at 151.1 million rupees ($995,717). ($1 = 151.7500 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

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