Central Bank to act aggressively to keep exchange rate below Rs. 185 per US dollar

The Central Bank of Sri Lanka (CBSL) is of the view that the recent increase in volatility of the exchange rate is ‘unwarranted’ and ‘unacceptable’.

Issuing a statement on Dec. 24, the CBSL stated that it would take appropriate action aggressively hereafter to contain this volatility in the domestic foreign exchange market.

The Central Bank expects that these actions, together with the continuation of the curtailment of non-essential imports, will enable the Rupee to appreciate within the next few days towards the levels of below Rs. 185 per US dollar observed in November 2020.

Further, the CBSL reiterates that official reserves remain at sufficient levels. At present, gross official reserves are at US dollars 5.6 billion.

Moreover, the Central Bank stated that discussions with its domestic and foreign counterparts to boost the level of reserves are also reaching an advanced stage of conclusion.

“The receipt of these expected inflows as well as the ongoing improvements in the domestic production economy leading to the expansion of foreign exchange earnings will facilitate the maintenance of exchange rate stability, while meeting Sri Lanka’s debt obligations on time, in the period ahead as well,”  the CBSL stated.

The Sri Lankan rupee has come once again under pressure and continued to trade weaker on back of COVID-19 pandemic effect.

According to the daily exchange report, the buying rate of a US dollar stood at Rs.189.08 on Dec. 24 whilst selling rate at Rs.194.66.  This is highest buying and selling rate recorded for a US dollar since, April 30, 2020.

This was the highest buying and selling rate recorded for US dollar since, May 4, 2020. During that day, the buying rate of the US Dollar stood at Rs. 188.37 and selling rate of the US dollar stood at Rs.194.11

Sri Lankan rupee, which remained broadly stable in the month of January 2020 as well as until the first week of March, depreciated sharply with the speculative behavior in the market with the spread of COVID-19 outbreak. On April 8, 2020 the selling rate of a US dollar exceeded Rs.200 mark.