Sri Lanka at risk of exchange rate crisis

Sri Lanka at risk of exchange rate crisis

11 September 2018 09:48 am

Seven countries including Sri Lanka, Pakistan and Turkey are at risk of exchange rate crisis as investors re-assess their risks following the contagion in Argentina and Turkey, a new index by Nomura says.

According to the global financial services major, emerging markets are under pressure as investors re-assess the risks amid monetary policy normalisation in developed markets, trade protectionism and China's economic slowdown.

Recent volatility of Sri Lanka’s rupee against the US dollar stems from a flexible exchange rate policy followed by the central bank, where it was deliberately refraining from intervening, its deputy governor Nandalal Weerasinghe said.

This is a sign of a market determined exchange rate. If we think it is too much movement we can intervene."

The new gauge, Damocles, that assessed the risk of exchange rate crises for 30 emerging market economies noted that seven countries are at risk of exchange rate crises with scores over 100: Sri Lanka, South Africa, Argentina, Pakistan, Egypt, Turkey and Ukraine.