COLOMBO: The Sri Lankan rupee closed at an all-time low on Thursday as a state-run bank, through which the central bank usually directs the market, raised the currency's peg against the dollar by 25 cents to allow the exchange rate to depreciate.
The rupee ended 0.19 percent weaker at 134.75 per dollar compared with Wednesday's close of 134.50, the previous all-time low.
"There was huge pressure on the rupee due to heavy importer dollar demand," a dealer said on condition of anonymity.
"Exporters are not converting because holding in dollars for them is cheaper in a lower interest rate regime."
In the backdrop of increasing pressure on the exchange rate, the government's debt office on Wednesday allowed yields on short-term government securities to rise 20 to 26 basis points at a weekly t-bill auction.
The benchmark 91-day t-bill yield on Wednesday hit a more than five-month high of 6.79 percent. The market had expected the central bank to allow the rupee to depreciate further, in line with other regional currencies that have declined against the dollar.
The state-run bank had raised the currency's peg against the dollar by 35 cents in two straight sessions through Monday, allowing the exchange rate to depreciate to 134.50.
Analysts said the rupee may fall to 138 levels in the short term if the central bank stops intervening via the state bank.
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