Sri Lankan rupee fell over 3 per cent to a record low of 139 against the US dollar after the Central Bank today allowed a free float of the currency by not quoting a specific rate in the market, financial analysts said.
The rupee traded at 139 to the US dollar when the forex market opened today, down from yesterday's close of 134.78.
The currency fell as the government stopped defending the rupee to shore up the exchange rate, amid weakness in emerging markets triggered by a devaluation of the Chinese yuan.
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It was only yesterday that the Central Bank announced it received 1.1 billion dollars from the Reserve Bank of India (RBI) as part of a currency swap agreement, in order to boost its foreign reserves and ease pressure on the local currency.
"With the enhanced level of official reserves, the Central Bank of Sri Lanka expects that the exchange rate would stabilise in line with sound macroeconomic fundamentals and movements of other currencies of major trading partners," the CBSL said.
However, as the markets opened today, traders said there was a sharp fall of the rupee which managed to recover slightly to end the day with a depreciation of about two per cent.
The country's official reserves fell to USD 6.88 billion by the end of July, from a peak of USD 9.18 billion in August 2014 due to increased demand to finance the import of electrical and electronic consumer goods and cars.
The rupee fell as the new government of national unity was inducted in office with the swearing in of the new Cabinet today.
