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SL Rupee falls from Grace becoming Asia’s worst-performing currency

By: Staff Writer

Colombo (LNW): After becoming the best-performing currency in the first half of the year, the Sri Lankan Rupee has taken a dramatic turn, plummeting to become the worst-performing currency in Asia recently although it remains steady against the US Dollar at commercial banks in Sri Lanka today (July 28) compared to yesterday .

At Peoples Bank, the buying and selling rates of the US Dollar remain unchanged at Rs. 321.15 and Rs. 336.95, respectively.

According to Commercial Bank, the buying rate of the US Dollar has reduced from Rs. 323.41 to Rs. 321.66, while the selling rate has also reduced from Rs. 334 to Rs. 333.

At Sampath Bank, the buying and selling rates of the US Dollar remain unchanged at Rs. 324 and Rs. 334, respectively

However the currency has seen a drop of over 6% in just one month, marking its longest daily losing streak in nearly five years.

This is a significant departure from its laudable performance in the first six months of the year, during which it saw a rise of 19%. Forecasts indicate that the currency may further depreciate by 8% by the end of the year.

The reasons for this set back were the uncertainty about the impact of head winds arisen out of market sentiment of further declining of policy interest rates of the central bank and the removal of import restrictions on majority of essential and non-essential items. leading to the increase in demand for dollar.

The demand for dollars in the country has surged as the nation, currently facing a crisis, has begun to ease import restrictions on a wider range of goods, including tiles and medical supplies.

This increase in demand for imported goods has put pressure on the already struggling rupee. Adding to this, the nation’s benchmark interest rate was also cut for the second time in the month as disinflation accelerated, a move that further impacted the currency.

Another factor was the Central Bank’s limited intervention in the foreign exchange market activities, financial analyst said.

As inflation cools down rapidly, the trade balance is expected to become more negative. This may lead to further reductions in the interest rate. The fluctuation of the rupee is being attributed to banks covering positions. In light of the volatile situation, the central bank’s governor has advised businesses to use hedging instruments and make decisions based on inflation expectations rather than the exchange rate.

When compared to other Asian currencies, the Sri Lankan rupee’s performance stands out starkly. For instance, the Pakistani rupee recently hit a new all-time low against the US dollar in the interbank market, making it the second-worst performing currency in Asia.

However, the Sri Lankan rupee’s dramatic shift from being the best to the worst in the region underscores the severity of the economic challenges the nation is grappling with at present financial analysts said.

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