COLOMBO: The Sri Lankan rupee fell on Tuesday on light importer dollar demand, even as the International Monetary Fund (IMF) called for more monetary policy tightening and measures to curb strong credit growth.
Further monetary policy tightening "is desirable" until there are clear signs that inflationary pressures are subsiding, the IMF said in a statement before markets opened on Tuesday.
The global lender, which completed its second review of a $1.5 billion loan approved in May last year, said Sri Lanka's performance under its programme has been "broadly satisfactory".
The completion of the second review will enable the IMF to release a third tranche of aid of about $167.2 million, bringing total disbursements under the arrangement to the equivalent of about $501.5 million.
The spot rupee closed at 153.75/80 per dollar, compared with Monday's close of 153.70/73.
"The expected IMF disbursement failed to boost the market. There was some importer (dollar) demand," a currency dealer said asking not to be named.
Analysts expect the currency to depreciate 4 percent this year. It has already fallen 2.6 percent so far in 2017.
Central Bank Governor Indrajith Coomaraswamy said on Monday the rupee was still "over-valued" and that the central bank was still buying dollars to avoid any appreciation.
He told Reuters that the central bank had bought dollars in the range of $750 million to $800 million from the market, out of the $1.2 billion it had planned to purchase in the 10 months from March this year.
The central bank is compelled to buy dollars from the market to meet a reserves target set by the IMF under a $1.5 billion, three-year loan programme.
Seasonal demand for dollars is expected to pick up from August, dealers said.
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