Sri Lankan rupee falls on dollar demand; c.bank raises spot reference rate

Dec 28, 2016 (Reuters) – Sri Lankan rupee fell on Wednesday on modest dollar demand after the central bank raised the spot reference rate, while the apex bank's new limit on one-week forwards capped further loss, dealers said. The market, however, awaited further clues from the central bank after it said on Friday that depreciation of the currency was not necessarily negative for the economy. Rupee forwards were active, with one-week forwards trading at 150.00/20 per dollar, down from Tuesday's close of 149.70/150.00. "The central bank raised the spot reference rate by 30 cents today to 149.80 and it also asked banks not to trade one-week forwards below 150.00 per dollar," a currency dealer said, asking not to be named.
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Officials from the central bank were not immediately available for comments. Dealers said the central bank last week raised the spot preference rate by 40 cents to 149.50 following another 40 cent hike in the previous week. The central bank said on Friday that "it is important to understand that depreciation of the rupee has not only negative implications, but also positive implications on the Sri Lankan economy". Spot-next forwards and the spot rupee were hardly traded, dealers said. The central bank may allow market forces to determine the rupee's direction next year, some dealers said, while some others believe the bank would have to let the currency depreciate or raise key policy rates at a meeting this week. Sri Lankan shares were 0.21 percent firmer as of 0744 GMT, recovering from their lowest close since April 6 hit in the previous session. Turnover stood at 903.9 million rupees ($6.04 million).