COLOMBO, Nov 27 (Reuters) - The Sri Lankan rupee recovered on Wednesday as exporter dollar sales outpaced importer demand for the greenback early in the day, after intervention by a state-run bank held the currency at 131.15, dealers said.
As the rupee spot was capped through intervention, three-day forward or spot next was actively traded in the market and ended at 131.30/35, firmer from Tuesday's close of 131.45/50.
Though the spot rupee was not active in the market, it was quoted at 131.20/35 per dollar when the market closed, Thomson Reuters data showed. It ended at a more than six-week closing low of 131.15/25 on Tuesday.
Three currency dealers said one of the two state banks, through which the central bank usually directs the market, sold dollars at 131.15 per dollar to ease downward pressure on the rupee.
'There were exporters in the market after the central bank capped at 131.15. Some banks sold dollars also on liquidity concerns,' said a currency dealer asking not to be named.
Central Bank Governor Ajith Nivard Cabraal said the central bank will intervene to keep the currency stable.
'The central bank does not want the market to experience any unnecessary volatility because of very small trades. In such instances, it will intervene in order to maintain stability,' Cabraal told Reuters on Wednesday.
Dealers said the currency will be under downward pressure because of continuing importer dollar demand, but will recover due to expected exporter conversions and foreign remittances ahead of Christmas.
While presenting the 2014 budget, President Mahinda Rajapaksa, who is also the finance minister, said last week maintaining a flexible exchange rate regime along with productivity improvement is important to achieve the export revenue target of $20 billion in 2020.
Dealers and banks, however, said there would be hardly any change in the central bank's exchange rate policy as it was already under a flexible regime.
The rupee hit a record low of 135.20 on Aug. 28, but has managed to stem further losses and has gained 3.09 percent since then.
(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sunil Nair) Keywords: MARKETS SRILANKA/RUPEE
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