The Sri Lankan rupee rose more than 3 percent yesterday as exporters sold dollars following the treasury secretary's threat to resume market interventions if the currency dropped beyond "tolerable" levels.
Treasury Secretary P.B. Jayasundera told reporters last Monday that the currency should stabilise below 125 rupees and there was no fundamental reason for it to weaken beyond that level.
"The rupee is firmer on exporter conversions and the market sentiment is that the rupee will strengthen further after the treasury secretary's comments," said a currency dealer.
The rupee rose 3.33 percent to trade at 126.00 to the dollar, currency dealers said. The country's financial markets were closed on Tuesday for a holiday.
To ease a shortage of dollars, the central bank also said it would allow part of a $500 million bond raised by the state-owned Bank of Ceylon to be sold in the market and would use the rest to build up its reserves, which were heavily depleted by past attempts to shore up the falling rupee.
The currency hit an all-time low of 133.50 on April 25, but has since rebounded by close to 6 percent.
Still, it is down 9.3 percent since the central bank stopped intervening to defend a specific price level on Feb. 9. It has depreciated more than 12 percent since Nov. 19, when the government allowed a 3 percent devaluation.