Rupee forwards were active, with two-week forwards closing at 153.10/30 per dollar, compared with Tuesday's close of 153.25/30.

"A foreign bank was selling the dollar and state banks were buying the dollar," a currency dealer said, asking not to be named.

Dealers said a government decision announced on Wednesday to double the borrowing limit of development bonds to $3 billion would increase the dollar liquidity in the market and could reduce the pressure on the currency.

After the government's announcement, yields in local t-bill slipped 9 basis points at a weekly auction.

Dealers said the market was also keen on inflows from an around $1.5 billion borrowing through a proposed sovereign bond issue.

Sri Lanka has seen a surge in foreign inflows into equities and government securities since early this month.

Foreign investors bought equities worth a net 12.3 billion rupees in 24 consecutive sessions through Tuesday.

They have also been net buyers of government securities worth 4.17 billion rupees in the week ended April 19. However, they have been net sellers to the tune of 58 billion rupees worth of government bonds so far this year.