COLOMBO: The Sri Lankan rupee hit an all-time low of 166.10 per dollar on Tuesday due to dollar demand from importers and banks to facilitate foreign bond outflows, but selling of the U.S. currency by a state bank limited the fall, market sources said.
Exporters expect the rupee to be under pressure due to continued importer dollar demand and less exporter dollar sales.
Meanwhile, the dollar held near seven-week lows against its rivals while riskier currencies gained after U.S. President Donald Trump escalated his trade war with China by imposing 10 percent tariffs on about $200 billion worth of Chinese imports.
The Sri Lankan rupee surpassed its previous record of 165.10 per dollar hit in the previous session, and closed at 165.90/166.00, compared with Monday's close of 165.00/30.
An illiquid market for dollars, dollar buying by foreign banks to facilitate bond outflows and importer demand weighed on the currency, said the sources.
Sri Lanka's finance ministry would not intervene in exchange rate management, Junior Finance Minister Eran Wickremaratne said on Thursday, adding that the central bank would intervene as and when necessary to curb excess volatility in the exchange rate and also punish speculators.
The central bank cut the net open positions of banks on Sept.6 to increase dollar liquidity, forcing commercial banks to sell dollars.
Since last week, currency dealers have been refusing to speak to the media, citing instructions from the central bank. However, central bank Governor Indrajit Coomaraswamy has said that he was unaware of any such move.
The rupee has weakened 2.7 percent so far this month after a 1.2 percent drop last month, and has declined 8 percent so far this year.
It will be under pressure due to year-end seasonal dollar demand from importers, dealers have said.
The currency has also been hurt by weakness in the Indian rupee. India is Sri Lanka's biggest trading partner and the Indian rupee, which also hit a record low on Tuesday, is Asia's worst performing currency this year.
Foreign investors sold government securities worth a net 2.6 billion rupees ($15.78 million) in the week ended Sept. 12, extending the net outflow so far this year to 55.9 billion rupees worth of securities, central bank data showed.