"The rupee opened at Rs. 133.60/134.00 against the dollar on Monday in light trading. (Dollar) selling was evident from a state name at Rs. 133.70, which was also the low for the US dollar. However, due to light demand it closed at Rs. 133.75/134.00 with the highest trade at Rs.133.90," the Sri Lanka Forex Association said.
Currency dealers said there was a certain degree of intervention by the Central Bank to keep the exchange rate stable, although the bulk of the sale was genuine trades by the state bank.
"The dollar sales by the Central Bank are not as huge or dominant as last year, but there is an attempt to keep the rupee under control. The political cost of a falling currency is huge. The import demand we are seeing now is for bookings made earlier this year, but within two months we should see a decline," a currency dealer said not wanting to be named.
Export conversions are not significant and currency dealers said the Central Bank was aggressively buying up dollars, which also adds to the depreciation pressure as the market faces some constraints to meet import demand.
"When importers begin to replenish their inventories we could see further pressures on the exchange rate, which would in turn put pressure on domestic prices with inflation already rising," a currency dealer said.
Economists have urged the government to persist with the policy measures taken to correct the balance of payments problem, as it would place Sri Lanka on a much more sustainable growth trajectory in the long run. Giving into political pressures would be counter productive, and would only delay the inevitable as it always has, with people having to face the full impact of sudden, painful adjustments.
"If corrective measures to counter the balance of payments problem were adopted towards the latter half of 2011, the impact on the people would not have been so severe as it was when measures were taken late in February this year," an economist said, not wanting to be named.