The spot rupee, which traded at a record low of 154.20/25 per dollar during the day, ended at 154.05/15, compared with Monday's close of 154.00/10.

"The pressure was there with demand (for dollars) from smaller banks. Some exporter selling came when the rupee hit 154.20/25 levels," said a currency dealer.

The rupee might witness volatility with the government's heavy debt repayment this year, said dealers.

Sri Lanka raised $470.6 million on Thursday via development bonds, the central bank said, as the government faces unprecedented debt repayment this year.

President Maithripala Sirisena's administration must repay an estimated 1.97 trillion rupees ($12.85 billion) in 2018 - a record high - including $2.9 billion of foreign loans, and a total of $5.36 billion of interest.

Foreign investors had sold 3.2 billion rupees worth of government securities this year up to Jan. 10, central bank data showed.

The currency fell 2.5 percent last year and 3.9 percent in 2016.

The central bank, while announcing its key economic policies for the year on Jan. 3, said it has allowed more flexibility in determining the exchange rate based on the present market conditions.

It added intervention policies will be adopted consistent with a flexible exchange rate regime and supportive of improving foreign exchange market functionality, and maintaining a competitive exchange rate will be an important objective.