COLOMBO, March 20 (Reuters) - A state bank sold dollars to boost Sri Lanka's rupee on Tuesday after it hit a record low of 131.60 a day earlier, despite strong importer demand for greenbacks due to the forthcoming April festive season.
"A state bank sold dollars at 129.00 and the rupee recovered slightly," a currency dealer said on condition of anonymity. Two others confirmed the move.
State-run Bank of Ceylon, through which the central bank usually directs the market, said the dollar sale was for its own purposes and was not an intervention by the central bank.
Many dealers said the reason for the sharp rupee depreciation was due to the central bank buying dollars to boost reserves. The central bank spent more than $2.7 billion in the second half of 2011 to defend the rupee against depreciation.
"The central bank has to meet reserves target to borrow the next tranche of the International Monetary Fund loan. So it is buying all the dollars in the market," a currency dealer said.
Central Bank Governor Ajith Nivard Cabraal on Friday said he will give a fair amount of dollars to the market from an expected inflow of $365 million due by the end of the month.
The IMF has said it is hoping to recommend the release of the next tranche of $800 million, which is expected to be decided at its executive board meeting in early April.
The rupee has depreciated 11.4 percent since the central bank stopped intervening to defend a specific price on Feb. 9. (Reporting by Shihar Aneez and Ranga Sirilal; Editing by Bryson Hull)