Dealers said state agents continued to halt the appreciation of the rupee as the exchange rate hovered around 114.90/115.00 yesterday, which to dealers, seemed to be a move to help the country’s export sector.

"After the war there is a tremendous amount of positive sentiments that foreign currency inflows will increase and speculative trading is putting pressure on the rupee to appreciate against the dollar. The rupee could have easily appreciated to about 113.50 against the dollar but state agents are keeping the rate at around 115," a dealer said.

The Central Bank had been criticized for artificially propping up the rupee at the expense of foreign currency reserves and exporters who could not get a competitive return with demand slumping and domestic costs rising.

"The rupee could easily appreciate so much so that exporters will begin to really suffer so it is a good thing that state agents are keeping the exchange rate stable at about 115," a dealer said.

Yesterday we reported that for every Rs.1 the local currency appreciates by, the debt obligation of the government increases by more than Rs. 14 billion. This happens when the rupee depreciates and not when it appreciates.

The Central Bank said Sri Lanka’s prospects look good.

"The foreign exchange market has also stabilised, as reflected by the strengthening of the rupee over the last few days. With the continuous decline in inflation and flexibility in the nominal exchange rate, the real exchange rate has depreciated, improving the competitiveness of the country’s external trade," the Central Bank said.

"While inflows of private remittances during the first quarter of 2009 have been more than sufficient to finance the deficit in the trade balance for the same period, there are indications of improved prospects for Sri Lanka’s key exports such as garments and tea," it said.