Rupee weakens on importer dollar demand

• nImporter dollar demand persists despite rate hike
• nShares up in thin trade after long holidays

(Reuters) - Sri Lanka’s rupee edged down on Monday as importers bought dollars, while the stock market closed virtually flat in thin trade after financial markets reopened following the new year holiday.

The rupee closed at 128.00/20, compared with Wednesday’s close of 127.50 a dollar, currency dealers said.

Stock and money markets were closed on Thursday and Friday.

The rupee has been supported by the central bank’s decision to raise interest rates this month to curb credit growth and has gained 2.8 percent since hitting a record low of 131.60 on March 19. However, it is still down around 10.7 percent since the central bank stopped defending it on Feb. 9 and adopted a more flexible currency policy to remove a point of friction with international lenders and relieve pressure on its fast dwindling reserves.

Dealers said importer demand for dollars is still high and putting downward pressure on the rupee, but the central bank on Monday said current interest rates were sufficient to curb importer demand and the trade deficit.

The Sri Lankan stock market gained just 0.2 percent or 9.07 points to 5,434.80, in light volume as many investors were still on holiday.

The day’s turnover was 206.1 million Sri Lanka rupees ($1.60 million), well below this year’s daily average of 1.33 billion rupees and near a three-year low.

Foreign investors were net sellers of 33.2 million rupees’ worth of shares, but they have bought a net 21.1 billion rupees’ worth shares so far in 2012.

The Colombo bourse is one of the worst performing Asian markets this year, losing 10.5 percent as investors have been deterred by rising interest rates and uncertain currency movements.