COLOMBO: Sri Lanka's rupee recovered on Friday from an over seven-month low, as banks sold dollars to cover their short positions in rupees to maintain the month-end statutory reserve ratio, currency dealers said.
The currency gained 0.6 percent to hit 129.90/130.10 per dollar in the first hour of trading, currency dealers said. It closed at 130.70/80 on Thursday, its lowest since Nov. 8.
Currency dealers said banks are in need of rupees on Friday to shore up their rupee reserves to the central bank's required level and thus most of them have been selling dollars.
The rupee has been on a falling trend since early this month as foreign investors have been pulling out of the island nation's treasury bonds due to a rise in the US treasury yields after the Federal Reserve's plans to trim its stimulus.
The central bank sold dollars on Thursday to smoothen the volatility after the currency fell more than 1 percent during the day.
Dollar assets have become a big lure for investors as the Fed prepares to dial down its massive bond-buying programme, which has triggered a huge selloff in emerging market bonds and currencies in the past week.
Foreign investors hold over $3.6 billion in treasury bills and bonds, central bank data showed.
The rupee has fallen 0.8 percent so far this week and 2.7 percent through this month. It has fallen 1.9 percent so far this year.
The rupee hit a record low of 134.30 on June 28, 2012, after the central bank moved to a flexible rupee exchange rate regime in February last year. It depreciated 10.7 percent in 2012.
Meanwhile, the start of trading at Sri Lanka's stock exchange was delayed due to a technical fault.
"We found that some clients' balances are mismatching in the automated trading system (AT)," Niroshan Wijesundara, the head of marketing and sales at Colombo Stock Exchange told Reuters.
"We are in the process of rectifying it. It will be up and running soon."
The main share index closed 0.64 percent firmer on Thursday despite a net foreign outflow of 451 million rupees.
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