COLOMBO, July 21 (Reuters) - The Sri Lankan rupee ended slightly firmer on Friday with late dollar sales by exporters and foreign banks outpacing demand for the greenback from importers, dealers said.
The spot rupee closed at 153.65/70 per dollar, from Thursday's close of 153.70/85.
"There were dollar sales by exporters and foreign banks in the latter part of trading," a currency dealer said, asking not to be named.
"We expect a gradual depreciation in the currency with the central bank buying dollars continuously."
Central Bank Governor Indrajith Coomaraswamy said on Monday the rupee was still "over-valued" and that the central bank was still buying dollars to avoid any appreciation.
The central bank is compelled to buy dollars from the market to meet a reserves target set by the IMF under a $1.5 billion, three-year loan programme.
Coomaraswamy told Reuters that the central bank had bought dollars in the range of $750 million to $800 million from the market, out of the $1.2 billion it had planned to purchase in the 10 months from March this year.
Analysts expect the currency to depreciate 4 percent this year. It has already fallen 2.6 percent so far in 2017.
Dealers said the market is also concerned that the downward pressure on the rupee is likely to rise due to the fall in government bond yields, after the International Monetary Fund (IMF) called for more monetary policy tightening and measures to curb strong credit growth.
T-bill yields fell 4-22 basis points at a weekly auction on Wednesday.
The fall in T-bill yields, which move in tandem with market interest rates, will increase the demand for cheap credit and add downward pressure on the currency, dealers said.
The IMF, which completed its second review of a $1.5 billion loan on Tuesday, said the country's performance under its programme has been "broadly satisfactory".
The completion of the second review will enable the IMF to release a third tranche of aid of about $167.2 million, bringing total disbursements under the arrangement to the equivalent of about $501.5 million.
Seasonal demand for dollars is expected to pick up from August, dealers said. (Reporting by Shihar Aneez; Editing by Sunil Nair)