Further monetary policy tightening "is desirable" until there are clear signs that inflationary pressures are subsiding, the IMF said in a statement before markets opened on Tuesday.

The global lender, which completed its second review of a $1.5 billion loan approved in May last year, said Sri Lanka's performance under its programme has been "broadly satisfactory".

The completion of the second review will enable the IMF to release a third tranche of aid of about $167.2 million, bringing total disbursements under the arrangement to the equivalent of about $501.5 million.

The spot rupee closed at 153.75/80 per dollar, compared with Monday's close of 153.70/73.

"The expected IMF disbursement failed to boost the market. There was some importer (dollar) demand," a currency dealer said asking not to be named.

Analysts expect the currency to depreciate 4 percent this year. It has already fallen 2.6 percent so far in 2017.

Central Bank Governor Indrajith Coomaraswamy said on Monday the rupee was still "over-valued" and that the central bank was still buying dollars to avoid any appreciation.

He told Reuters that the central bank had bought dollars in the range of $750 million to $800 million from the market, out of the $1.2 billion it had planned to purchase in the 10 months from March this year.

The central bank is compelled to buy dollars from the market to meet a reserves target set by the IMF under a $1.5 billion, three-year loan programme.

Seasonal demand for dollars is expected to pick up from August, dealers said.