COLOMBO: The Sri Lankan rupee traded weaker at a near seven-week low on Wednesday due to importer dollar demand despite the intervention by state banks to hold the currency at 131.15, dealers said.
The spot rupee was quoted at 131.20/45 per dollar at 0551 GMT, its lowest since Oct. 10, Thomson Reuters data showed. It closed at 131.15/25 on Tuesday.
Three currency dealers said one of the two state banks, through which the central bank usually directs the market, sold dollars at 131.15 per dollar to ease the downward pressure on the rupee.
"The intervention is seen as central bank directing the market," said a currency dealer asking not to be named. "There was an offer at 131.30, but I don't think nobody would take it at that level," the dealer said.
A central bank official said the intervention was due to excess volatility in line with the central bank policy.
Nandalal Weerasinghe, one of the central bank deputy governors late on Tuesday at a Reuters forum said that they will intervene to ensure to not "allow market to play whatever it wants. "Our responsibility is to manage the rate at volatile movements," Weerasinghe told the forum.
As the rupee spot was capped through intervention, three-day forward or spot next was actively traded in the market and traded at 131.45/55 per dollar, tad weaker than Tuesday's close of 131.45/50.
Dealers said the currency will be under downward pressure because of continuing importer dollar demand, but it will recover due to expected exporter conversions and foreign remittances ahead of Christmas.
While presenting the 2014 budget, President Mahinda Rajapaksa, who is also the finance minister, said last week maintaining a flexible exchange rate regime along with productivity improvement is important to achieve the export revenue target of $20 billion in 2020.
Dealers and banks, however, said there would be hardly any change in the central bank's exchange rate policy as it was already under a flexible regime.
The rupee hit a record low of 135.20 on Aug. 28, but has managed to stem further losses and has gained 3.09 percent since then.
At 0602 GMT, Sri Lanka's main stock index was 0.11 percent, or 6.16 points, up at 5,754.17, recovering form a near 10-week low hit in the previous week session.
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