The Sri Lankan rupee was Asia’s best-performing currency on Friday, snapping a nine-day losing streak with its biggest single-day gain since March 2023, Bloomberg reported on Sunday — and most economists in a Bloomberg survey now expect the Central Bank of Sri Lanka to raise rates at its Tuesday policy meeting.
The currency strengthened as much as 2.7% intraday, reversing a Thursday slide that had taken it to a three-year low. Even with Friday’s bounce, the rupee remains Asia’s worst-performing currency year-to-date, weighed down by the oil price shock from the Iran war.
Deputy Minister of Finance and Planning Anil Jayantha Fernando told reporters in Colombo that Friday’s strengthening “may have been due to some market players deciding to sell dollars before upcoming inflows from the International Monetary Fund and Asian Development Bank.” IMF Mission Chief Evan Papageorgiou last week confirmed Sri Lanka’s policy framework as ‘stronger’ ahead of the May 27 Executive Board review, with a ~US$ 700 million disbursement expected.
Bloomberg said the decline had been “heightened by [fears] of further weakening, as importers buy more dollars and exporters delay conversion of foreign currency holdings, according to the government” — the same dynamic Wednesday’s SJB MP Harsha de Silva had described as a ‘frozen’ interbank market.
Sanjeewa Fernando, chief economist at Asia Securities Pvt. Ltd., told Bloomberg the rupee could stabilise “if the authorities announce a proper macro adjustment to stop these leakages through FX, imports, while taking measures to fasten export conversion and monetary tightening.”
Sri Lanka has already imposed an import duty surcharge on private vehicles, and the CBSL met forex dealers on Wednesday to discuss tighter regulations. The rupee’s Friday close at Rs. 329/331 in the spot market followed Thursday’s Rs. 342/350 print and President Anura Kumara Dissanayake’s public assurance that “2022 will not happen again,” citing US$ 7 billion in reserves.
The May 26 rate decision — and the May 27 IMF board outcome — are the two near-term catalysts that will determine whether Friday’s rally extends into next week.
Source: Ada Derana / Bloomberg.
