Rupee continues downward slide

The US dollar was selling at around 280 – 290 Sri Lankan rupees by the end of Tuesday (15), the lowest it has been against the Dollar.

The Sri Lankan rupee had been depreciating against all major world currencies since last week after the government ended the interventions to strengthen the rupee. On 07 March, the Central Bank announced that greater flexibility had been allowed in the exchange rate.

Earlier the rupee was pegged at 200 – 203 against the US dollar. However, this led to a reduction in foreign remittances. Sri Lankans employed abroad used to remit approximately 7 to 8 billion US dollars annually to Sri Lanka. The amount dropped dramatically by about 2.5 billion US dollars in 2021 after the government pegged the dollar at 200 rupees. Several Sri Lankan economists urged the government to devalue the rupee in the past few months, stating that this policy was creating forex shortages and parallel exchange rates in the black market.

The rupee dropped to 230 against the US dollar on 08 March and had been depreciating steadily ever since.

Economists have urged the Central Bank to raise policy rates to support the rupee and slow domestic credit. However, the Central Bank states that the exchange rate will stabilise after the market reaches an equilibrium. (RK)