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CB determined to curb unwarranted depreciation of the rupee

Sri Lanka’s Central Bank says it is determined to curb unwarranted depreciation of the rupee since the underlying fundamentals do not warrant the current pressure on the Sri Lanka currency.

The Bank in a statement released today said the gross external reserves are presently at a healthy USD 9.1 billion and the real effective exchange rate indices indicate that the currency is competitive.

“The pressure on the currency is, therefore, unwarranted,” the Bank stressed.

The following inflows are expected to boost the current robust level of reserves in the coming weeks.

– USD 250 million as the next tranche of the IMF EFF in early June;

– USD 585 million as the final payment on the long lease of the Hambantota port during the 2nd week of June 2018; and

– USD 1 billion as the proceeds of a syndicated term loan due in mid-June 2018.

Gross external reserves are, therefore, expected to amount to a record close to USD 11 billion by mid-June 2018.

“While being committed to flexible exchange rate management, the CBSL has the option of using a part of its unprecedentedly large external reserves to trigger a material appreciation of the rupee to prevent unwarranted depreciation of the currency, particularly as it is not justified by the underlying fundamentals,” the Bank said.

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