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CB urges businesses to grasp exchange rate dynamics amidst Rupee appreciation

May 14, Colombo (LNW): The Central Bank of Sri Lanka (CBSL) underscored the significance of businesses comprehending the current exchange rate system to facilitate more precise expectations, thereby mitigating the risk of losses stemming from currency exchange fluctuations.

Amidst the recent sharp appreciation of the rupee, Sri Lanka’s businesses, particularly exporters, have advocated for a stable and competitive exchange rate.

Central Bank Governor Dr. Nandalal Weerasinghe highlighted the importance of understanding the mechanism determining the exchange rate.

Businesses, accustomed to long periods of fixed exchange rates, often face losses due to disparities between anticipated and actual exchange rates, he emphasised.

Weerasinghe stressed that businesses can make more accurate judgments by grasping the current exchange rate regime, which aims to moderate volatilities.

He explained that due to underlying macroeconomic issues, fixing the exchange rate as desired by many is not feasible without addressing fiscal and external imbalances, which could lead to a boom-and-bust cycle.

Emphasising the CB’s core objective of maintaining price stability, Dr. Weerasinghe cautioned against relying solely on exchange rate fixing to achieve this goal.

Meanwhile, Bingumal Thewarathanthri, Chairman of the Sri Lanka Banks’ Association and CEO of Standard Chartered Sri Lanka, anticipated a stronger rupee post the completion of Sri Lanka’s external debt restructuring, anticipating inflows.

However, he foresaw a subsequent depreciation of the rupee.

Thewarathanthri acknowledged exporters’ concerns regarding the competitiveness of Sri Lanka’s exports in the global market, attributing them to a strengthening rupee and increased input costs.

He expressed optimism for achieving stability but emphasised the need for careful monitoring of developments in this space.

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