COLOMBO, March 27 (Reuters) - Sri Lankan shares fell to a more than one-year closing low on Monday in dull trade as investors sold shares of lenders after the central bank tightened monetary policy in the previous session, dealers said.
On Friday, the central bank raised its benchmark interest rates by 25 basis points for the first time in eight months to contain high inflationary expectations and a possible acceleration of demand side inflationary pressures.
The Colombo stock index closed 0.36 percent weaker at 5,974.94, its lowest close since March 15, 2016. The index broke below a key psychological barrier of 6,000 on Wednesday.
"Margins (calls) are still affecting the market. Buying interest still hasn't come back into the market," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.
"Investors took the rate hike as a positive as it will give some kind of stability in the economy and the hike was less than what they expected. But investors are still waiting for the market to bottom out to get in."
Turnover stood at 429 million rupees ($12.7 million), less than this year's daily average of 688.4 million rupees.
The index had lost 2.18 percent since March 7 after the IMF called for monetary policy tightening if credit growth or inflation do not abate.
The bourse fell to "oversold" territory from "neutral", with the 14-day relative strength index dropping to 27.488 points versus Friday's 30.480, Thomson Reuters data showed. A level between 30 and 70 indicates the market is neutral.
Foreign investors net bought shares worth 76.3 million rupees on Monday, raising the year-to-date net foreign inflow to 3.89 billion rupees in equities.
Shares in Melstacorp Plc fell 3.06 percent while the biggest listed lender Commercial Bank of Ceylon Plc fell 1.59 percent. ($1 = 151.4000 Sri Lankan rupees) (Reporting by Ranga Sirilal and Shihar Aneez; Editing by Vyas Mohan)