COLOMBO Jan 13 The Sri Lankan rupee fell on Monday from its 2-1/2 month high hit in the previous session as importer dollar demand outpaced banks' dollar sales, but the market expects the currency to strengthen.
Dealers said investor sentiment on the currency was positive because of expected inflows from a $1 billion sovereign bond issue this week.
The spot rupee ended at 130.68/73, weaker from Friday's 130.60/70, which was its highest close since Oct. 24.
"Importer demand pulled the currency. But in the latter part of the day, banks sold dollars expecting bond proceeds to strengthen the currency," said a dealer.
The rupee is likely to appreciate in the near term due to inflows from the bond issue, dealers said, but gains would depend on whether the central bank wanted to buy the inflows to build up its reserves or increase dollar liquidity in the market.
The central bank said on Jan. 2 it expected the rupee to strengthen in the medium term and any direct intervention in the foreign exchange market would be minimum.
The rupee has gained about 3.4 percent since it hit a record low of 135.20 on Aug. 28. It lost 2.5 percent in 2013.
Both the stock and foreign exchange markets will be closed for public holidays on Tuesday and Wednesday. Normal trading will resume on Thursday. (Reporting by Ranga Sirilal and Shihar Aneez)