COLOMBO: The Sri Lankan rupee ended flat in thin trade as optimism around the local currency eroded slightly ahead of a US Federal Reserve meeting despite an expected boost from a $750 million bond sale by a state-run bank.

The Fed meets on Tuesday and Wednesday to decide when and by how much to scale back its asset purchases from $85 billion a month. Dealers said any reduction may prompt foreign investors to exit Sri Lankan government securities which could put the rupee under pressure.

The rupee spot, inactive for several weeks, was actively traded early on Monday.

It closed steady at 132.25/35 per dollar.

Dealers said the three-day forward or spot-next started trading on Monday as the central bank had directed some banks not to trade above 132.25 rupees a day.

“We didn’t see much of demand, but it was surprising to see a direction from the central bank asking some banks not to trade the rupee spot above 132.25 per dollar,” a currency dealer said asking not to be named.

The central bank said it had not really given a direction.

“We have asked certain banks not to make any excessive movements as money is coming into the market because of the bond proceeds from the NSB issue,” an official at central bank’s International Operations Department said, adding it was done to prevent sharp volatility.

National Savings Bank’s (NSB) 5-year bond was priced to yield 8.875 percent.

The currency hit a record low of 135.20 on Aug. 28, before recovering. It has fallen 3.6 percent this year.

The rupee has been falling since early July as foreign investors started pulling out of local bonds as US Treasury yields rose in expectation of the Fed pullback.

Foreign holdings in Sri Lankan government securities hit a more than five-month low after falling in three straight weeks ended Sept. 11.

They edged down 0.6 percent to 479.59 billion rupees ($3.63 billion) in the week ended on Sept.11, the lowest since April 3, central bank data showed.

Foreign holdings have fallen 4.74 percent in the three weeks ended Sept. 11, the data showed.

Central bank Governor Ajith Nivard Cabraal said earlier this month that foreign holdings in government securities are still above the threshold of 12.5 percent of the total outstanding T-bills and T-bonds.