CBSL: Debt servicing won’t lead to huge depreciation of rupee

By Rathindra Kuruwita

It is unlikely that the rupee will significantly depreciate following the recommencement of bilateral and commercial debt servicing, says Director of the Central Bank Economic Research Department, Dr. P. K. G. Harischandra.

Dr. Harischandra said so when he was asked by journalists yesterday whether the rupee would depreciate significantly when the country resumed the repayment of bilateral and commercial debt. He said that Sri Lanka had continued to service the debt from multilateral organisations.

“We won’t have to pay bilateral and commercial loans immediately. There will be a grace period due to debt restructuring,” he said.

Dr. Harischandra said Sri Lanka would receive funds from the IMF, the World Bank and the Asian Development Bank.

“There is no reason why we can’t manage debt restructuring,” he said.

Commenting on speculations that there would be sharp exchange rate fluctuations, Dr. Harischandra said there was also no reason to expect large fluctuations in the exchange rate in the future. Undue speculations might just hurt market players, he said.

“There have been slight ups and downs in recent months. In 2022, the rupee depreciated by over 45 percent. Such sharp fluctuations of course affect inflation. However, slight fluctuations don’t really affect inflation. If you look at inflation between 2009 and 2020, it was in single digits, but there was noticeable depreciation during that time. There is a trade gap of about 400 million U.S. dollars a month. But we get about 485 million dollars a month by way of remittances. We also get a substantial amount from tourism. There isn’t a lot of pressure from the trade gap,” he said.

Dr. Harischandra said that inflation would drop further in August and would stabilise.