INTERVIEW-Sri Lanka waiting for opportune time to raise up to $1.5 bln bond

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* Aims for up to 30-year tenure for sovereign bond this year

* Will use bond proceeds to roll over 2015 debts

* Reserves on the rise after sharp fall in January

* Cut in interest rates possible if inflation falls

By Shihar Aneez

COLOMBO, March 3 (Reuters) - Sri Lanka is waiting for the right time to launch a sovereign bond of up to $1.5 billion, possibly with a longer tenure to roll over its debts in 2015, Central Bank Governor Arjuna Mahendran said on Tuesday.

The island nation's last sovereign bond of $500 million was priced at a yield of 5.125 percent in April 2014.

"Now that inflation is coming down, I see no reason why we won't get a better rate of interest," Mahendran told Reuters.

Sri Lanka's inflation hit a record low of 0.6 percent in January, slowing from 3.2 percent the previous month after the new government reduced fuel prices.

Speculation over an interest rate hike by the U.S. Federal Reserve and Greece possibly exiting the euro zone have been weighing on emerging markets' bond pricing at the moment, Mahendran said.

"So we want to wait for an opportune moment. When that volatility decreases then we will be able to get the best possible rate for our borrowing," he said.

"I will definitely go for a longer tenure, may be even a 20-year or 30-year is something to look for. We don't want to increase the interest rate burden of the country."

The bond will be used to roll over some expensive debts that have to be repaid this year, he said.

Mahendran said the lead managers for the bond issue have been picked, but declined to name them.

The central bank repaid a $500 million sovereign bond from its reserves soon after the Jan. 8 presidential polls as the $76 billion economy was unable to raise money through sovereign bonds due to the election.

However, that along with some other debt repayments depleted the country's foreign currency reserves by more than $1 billion in January alone, when it fell 13.2 percent to $6.28 billion.

That put pressure on the rupee currency resulting in a 1.2 percent fall against the dollar in January.

"Now that pressure is off because we don't have that kind of bunching up of repayments for most of the rest of the year," the central bank governor said.

"So we are not expecting the currency to be under pressure. In fact, in the last few weeks, we have seen our reserves increasing. We have over $7 billion, which is enough to cover over 4.5 months of imports."

He said allowing the rupee to float freely could cause a lot of volatility because the currency market is a "very thin market" and small trading volume could create volatility.

Sri Lanka's policy rates have been held at a record low since January 2014 and the central bank removed a lower penalty rate of 5 percent with effect from Monday, which Mahendran said was to eliminate interest rate volatility in the call money market.

The central bank in September imposed the penalty rate to discourage commercial banks parking their money in the central bank and that encouraged lending at a lower rate to boost private sector credit growth.

"I am expecting if inflation falls towards the middle of the year, then we will be able to start reducing interest rates further." (Editing by Jacqueline Wong)