In the repo market, where overnight loans backed by gilts, most deals were made at 7.45 percent Wednesday in early trading, dealers said.
In the call market where loans are made without collateral, rates were around 8.50 percent, dealers said.
The average overnight repo rate rose to 7.38 percent Tuesday, up from 7.21 percent a day earlier. It was the highest since 7.39 percent reached on October 26, according to official data.
The highest priced deal was done at 7.45 percent.
Dealers said some banks were borrowing at higher rates since they did not have exposure limits to borrow from lenders who were liquid.
In a central bank controlled banking system, the monetary authority acts as the central counterparty to contain rates at the 'reverse repo' window rate or overnight money auctions.
After the end of a balance of payments crisis in 2009, Sri Lanka's overnight rates have ranged near the central bank's lower standing facility to drain excess liquidity generated from external inflows.
The reverse repo window facility through which liquidity can be given to the markets is at 8.50 percent. It is still 75 basis points higher than Tuesday's highest rate. The central bank can inject money at lower rates through a reverse repo auction.
The central bank is draining excess liquidity which are partly injected via direct Treasuries purchases through a daily auction at 7.08 percent or its standing facility at 7.08 percent.
Excess liquidity remained flat at 19.7 billion rupees, largely unchanged from a day earlier, while the Central Bank's Treasuries stock was also stable at 70.2 billion rupees.
Tuesday's average risk free overnight rate is now higher than the 7.26 percent 12-month Treasuries rate reached at last Wednesday's auction.
Last week auction yields were allowed to go up one basis point across maturities by the central bank, with the 3-month yield reaching 7.15 percent and the 6-month yield reaching 7.23 percent.
In the call market the weighted average rate rose to 8.21 percent Tuesday, up from 8.04 percent a day earlier. The highest deal was at 8.45 percent.
In the forex markets, the spot dollar traded at 110.19/20 rupees, where the rate is defended by the Central Bank.
When sustained peg defence started two months ago, analysts warned that it will become increasingly difficult to control rates as liquidity in interbank markets ran out due to dollar sales by the monetary authority.
Balance of payments trouble comes from a central bank that tries to control both interest rates and the exchange rate at the same time.
The central bank however has said the problem will be temporary and more inflows of foreign exchange were expected later in the year.