* Rupee kept steady despite IMF request to limitintervention * Market expects rupee to fall in near future * Shares end weaker amid foreign selling.
Sri Lanka's rupee currency premiums edged up on Thursday after the International Monetary Fund asked the central bank to limit its intervention in the foreign exchange rate and allow flexibility in the exchange rate.
The global lender urged the central bank to allow market forces to decide the exchange rate as the island nation's non-borrowed reserves have steadily declined.
The rupee closed unchanged at 110.19/20 as a state bank, through which the central bank directs the market, sold dollars at a flat rate of 110.20 despite heavy importer demand for greenback, while maintaining a dollar trading range of 109.70/110.20, dealers said.
Currency dealers said 3-month, 6-month and one-year forward premiums edged up by 10-15 cents after the IMF statement.
"This likely explains the push higher in the dollar-rupee trading range since early August, which is in contrast to the strong rupees policy followed by the central bank for most of this year," Standard Chartered Bank said in a investor note.
"With the IMF review concluded, we expect the central bank to revert to the earlier FX policy," it said referring to allowing the currency to depreciate slightly in a way that would not create huge volatility in the market.
On Thursday, the stock market edged down 0.1 percent or 6.26 points to 6,991.60, led by a 0.7 percent loss in the market heavyweight and top conglomerate John Keells Holdings.
The bourse saw a foreign outflow of 450 million Sri Lanka rupees ($4.1 million) on Thursday and thus far offshore investors have sold 14.93 billion after a record 26.4 billion in 2010.
($1 = 110.200 Sri Lanka Rupees)