Sri Lankan rupee falls; central bank raises key rates

COLOMBO: The Sri Lankan rupee closed lower on Friday on importer dollar demand, even as the country's central bank raised benchmark interest rates by 25 basis points in a move also aimed at easing pressure on the currency.

The central bank raised interest rates for the first time in eight months, saying tighter policy was a precaution against a build-up of inflationary pressures.

The rate hike could help stabilise the rupee as rising imports and outflows due to rupee bond sales by foreign investors have exerted pressure on the currency, analysts said.

Rupee forwards were active, with two-week forwards closing at 152.60/70 per dollar, compared with Thursday's close of 152.45/55.

"There was importer dollar demand. We have seen a state bank buying dollars, maybe to cover a large oil bill," said a currency dealer, asking not to be named.

The central bank raised the spot rupee reference rate by 25 cents to 151.60 on Monday.

Foreign investors net sold government securities worth 1.41 billion rupees ($9.3 million) in the week ended March 15, after two weeks of net inflows.

They have net sold 63.3 billion rupees of such instruments so far this year.